The best ETF for US exposure: VTS vs IVV
Tap into the growth of the US market through broad market ETFs.
ETFs continue to rise in popularity with a large portion of Australian investors now holding at least one in their portfolio.
Why ETFs?
ETFs offer instant diversification with many investors using them to access passive investments. Active managers typically struggle to outperform an index over longer periods, creating an allure for passive ETFs.
Passive funds have benefited from a strong run. Notably, the US equity market returned eyewatering numbers last year with the S&P 500 gaining 25%, thanks to ‘Magnificent 7’ dominance. Unsurprisingly, iShares S&P 500 ETF (ASX:IVV) had the second highest 1-year net flows in 2024 indicating an increasing investor appetite for passive US equity exposure.
The US market attracts a flock of investors due to its size and liquidity as the biggest listed equity exchange in the world. Further, US companies tend to be global leaders whilst the Australian market has a domestic focus. There are many reasons for the appeal of the US market, Shani Jayamanne sat down with leading financial commentator Danielle Ecuyer, to discuss why US equities can’t be ignored in a portfolio.
Two popular ETFs used for US exposure are iShares S&P 500 ETF (ASX:IVV) and Vanguard US Total Market Shares ETF (ASX:VTS). The two are almost indistinguishable with the Morningstar Correlation Matrix indicating a 0.99 correlation. This article provides a breakdown of key differences to determine which one may be right for you.
iShares S&P 500 ETF IVV vs Vanguard US Total Market Shares ETF VTS
Purpose
Both IVV and VTS track an index meaning they are passively managed. IVV tracks the flagship S&P 500, which selects 500 of the largest US stocks, comprising ~80% of the US equity market and weights constituents by market cap. On the other hand, VTS tracks the CRSP US Total Market Index (~3,500 constituents), which represents the entire investable US stock market and also weighs constituents by market cap.
Morningstar rating
The Morningstar medallist rating is a forward-looking system that aims to predict funds’ performance versus a relevant benchmark index or peer group.
The top three ratings of Gold, Silver, and Bronze all indicate that our analysts expect the rated investment vehicle to beat the Morningstar Category index or category median over the long term. It takes the form of Gold, Silver, Bronze, Neutral, and Negative, with higher ratings denoting our conviction in a fund’s ability to outperform and lower ratings indicating a lack of conviction.
IVV and VTS are both currently Gold rated meaning that analysts consider them strong across the three key evaluation pillars—process, people, parent.
Diversification
The key area where the two ETFs differ is level of diversification.
As discussed, IVV tracks the S&P 500 which comprises of large-cap companies with the minimum market cap entry requirement of USD $22 billion. Alternatively, VTS tracks the CRSP US Total Market Index which has a wider universe of companies that accommodates for mid, small and micro caps.
The charts below illustrate a market capitalisation breakdown for both ETFs. IVV clearly skews to the larger companies with 81% of holdings at giant and large cap status. VTS skews similarly, however only 72% of its holdings are in that same status due to a bigger emphasis on the mid, small and micro-cap, reflecting the entire investable market.
Figure 1: IVV and VTS market capitalisation composition. Source: Morningstar. Author visualisation. IVV as of 1 Sept 2025 and VTS as of 30 Sept 2024.
With historical data pointing to small cap outperformance over time, a heavier presence in small caps may underpin greater returns. Although as indicated by similar 10-year returns for both, it is not clear that a broader approach has made a reasonable difference to returns.
Whilst the top 10 constituents of both ETFs remain the same, VTS naturally results in lower weighting for the larger constituents. IVV skews to the larger players with its top 10 holdings comprising 37% of ETF portfolio weight in comparison to VTS’s 32%. Big tech companies dominate both ETFs introducing the argument for some concentration risk in both.
Figure 2: IVV and VTS sector composition. Source: Morningstar. IVV as of 1 Sept 2025 and VTS as of 30 Sept 2024.
Fees
Morningstar research shows that lower-cost funds have a greater chance of outperforming their more expensive peers. The chart below shows the cheapest quintile achieving a higher success ratio than the most expensive fee quintile. Despite this, investors should not look at fees in isolation as qualitative factors are also vital in determining a fund’s outperformance potential.
Figure 3: Low costs are key to success. Source: Morningstar Direct.
The total cost of an ETF comprises of holding costs and transaction costs. The latter is often determined by your broker whilst the holding costs are linked to owning shares in an ETF.
Morningstar’s total cost ratio (“TCR”) aims to identify the main component of the total cost of a listed fund. The TCR is typically a percentage of the holding value. The TCR includes management or investment fees, performance fees, administration fees and any other fees for underlying funds or similarly outsourced fee arrangements. An investment with a TCR of 0.5% and a holding value of $5,000 would incur $25 in fees per year.
VTS tops IVV in this category with a TCR of 0.03% compared to IVV’s 0.04%. Whilst this may not appear like a significant difference, the TCR becomes a larger consideration (than transaction costs) when the ETF is held over a long-time horizon.
VTS has the benefit as a total-market fund. These funds mitigate transaction costs as they don’t target specific segments of the market and aren’t forced to buy or sell stocks when they enter or exit. However, the turnover in a broad index-based ETF like IVV is also very low.
By pure management fee, VTS is currently the cheapest US equity ETF on the ASX.
Read here to find out more about the total cost of owning an ETF.
Performance and volatility
In terms of returns, the performance is similar with IVV generating marginally higher returns over every period as illustrated.
Figure 4: IVV and VTS trailing returns (as of 31/08/25). Author visualisation. Source: Morningstar.
If you had invested $10,000 into VTS ten years ago the investment would now be worth $40,455. Comparatively, that same investment in IVV ten years ago would be worth $41,884—a difference of $1,429 (not accounting for inflation).
This returns difference can be attributed to the difference in weighting for large and small caps in the ETFs. Despite historical evidence of small cap outperformance, the opposite of this has occurred in the US market over the last 10 years. Small cap stocks have consistently lagged their larger counterpart and the market overall.
Investors deciding between IVV and VTS may question the need for diversification into small caps due to lower performance and the associated volatility.
However, Morningstar sees small caps as well positioned to add significant value to investors’ portfolios in 2025 and beyond. Falling central bank rates, attractive valuations and a boost from reshoring might pave the way for rewarding returns for investors willing to embrace the risk.
Given the presence of micro and small cap stocks in VTS, volatility should be taken into consideration. Large cap-heavy fund IVV derived a 10-year standard deviation (volatility measure) of 12.1% compared to VTS’s 12.5%.
The inclusion of smaller companies into a fund increases overall volatility, although just marginally in this case. This may be a consideration for investors with shorter time horizons. This slight variation is a result of micro and small caps having minimal impact at less than 10% of the overall portfolio.
Turnover
The turnover of a fund is the frequency at which assets within are bought or sold. A turnover ratio represents the percentage of a fund’s holdings that have changed over the past year. A higher turnover ratio is often indicative of a higher churn in the portfolio as compared to a long-term buy and hold manager who typically runs the portfolio with a lower turnover ratio. High churn within an ETF can result in higher transaction costs or capital gain taxes as securities are bought and sold.
Described as a one stop shop for all US stocks, VTS being a total-market fund mitigates turnover and associated transaction costs. The ETF currently sports a turnover ratio of 4% with a small amount of turnover at the lower rungs of the portfolio. However, the index implements buffer rules around its lower market-cap bound to limit unnecessary churn (market cap of at least USD 15 million and at least 12.5% of total shares publicly available). It also spreads the rebalancing process over a five-day period to reduce potential market impact costs.
Best-in-class for large cap investors, IVV also has the benefit of low turnover at a reported 0%. This is perhaps reflective of the large cap opportunity set. The index committee further curbs turnover by implementing changes as it sees fit rather than adhering to a strict reconstitution schedule.
Listing
A notable downside to VTS is that it is a cross-listed fund, meaning it trades on multiple markets simultaneously. For investors this may require added tax and administrative upkeep requirements.
On the other hand, IVV switched from a cross-listed to a domestic fund in 2018 which negates the additional paperwork requirements for investors. For further information, you can read tax implications when investing in overseas shares and ETFs.
Which ETF is the best for your portfolio?
It is important to align your asset allocation with your investment strategy and goals. Whilst both ETFs offer similar returns and broad US exposure, minor differences in diversification, fees and volatility may guide your choice.
There is a negligible 0.01% variation in TCR for each fund and in isolation are some of the lowest cost US-exposure EFTs available in the market.
VTS has marginally greater volatility due to exposure to small and micro caps unlike its competitor IVV who owns less than 1% of holdings in these categories. Generally, volatility is not a significant consideration for longer term investors, especially at these low points of difference. If you anticipate a withdrawal in a shorter time span, then taking heed of this can help avoid losses.
For further information on ETF investing, you can find some of our best ETF resources here.
