Vanguard Total Stock Market ETF remains market-weighted with heavy tech concentration, raising diversification concerns

The Vanguard Total Stock Market ETF (VTI) is designed to give investors exposure to a broader set of U.S. equities than the S&P 500. The S&P 500 tracks roughly 500 large-cap U.S. stocks across sectors, while VTI holds a basket of about 3,500 stocks, representing a majority of U.S. publicly traded companies.

How VTI is constructed

VTI is passively managed and includes large-, mid-, and small-cap stocks across sectors and styles, including growth and value. Like the S&P 500, it also includes some of the world’s largest companies by market capitalization, such as Nvidia, Apple, and Microsoft.

VTI is based on a market-weighted approach. As a result, its largest sector is technology, which accounts for roughly 36% of the ETF. This structure also means that the biggest stocks in the S&P 500 can represent a disproportionate share of VTI. For example, Nvidia makes up over 6% of the ETF, Apple nearly 5.9%, and Microsoft roughly 4.4%.

Concentration versus diversification

The market-weighted design can reduce the diversification benefit that some investors expect from “total market” exposure. Heavy concentration in large technology and related names means VTI remains overweight tech stocks at present.

At the same time, the article notes that large U.S. technology and AI stocks have looked more attractive after a period of weakness earlier this year. While the group sold off, Wall Street analysts have largely raised earnings estimates, which has helped compress valuation multiples.

Valuation and earnings context

One example cited is Nvidia, which the article says now trades at a forward earnings multiple of 21.4. The piece frames this as potentially reasonable for a company growing earnings and revenue at a similar pace.

Still, it highlights ongoing AI-related concerns, including circular financing and the possibility of a future slowdown in AI capital expenditures. The article argues that, despite these risks, the risk-reward proposition may have improved.

Performance range and long-term takeaways

The article states that VTI is down from its high, but it does not provide specific figures for its 52-week range beyond referencing that it “tells a different story.”

Alternative approach: equal-weight exposure

If investors want exposure to a diverse basket of U.S. stocks without a market-weight component, the article suggests the Invesco S&P 500 Equal Weight ETF. It notes that an equal-weight approach can be less volatile, with less sell-off in bear markets, but also less upside in bull markets.

Bottom line

Ultimately, the article concludes that the “best” way to gain exposure to the entire U.S. stock market depends on an investor’s current position and overall strategy, particularly regarding how they weigh concentration risk against the market-weighted structure of VTI.