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ETF Specialist

This S&P 500 ETF Earns Our Top Rating

A small fee and diversified exposure to large-cap U.S. stocks elevate this Vanguard fund to Gold status.

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Vanguard S&P 500 ETF (VOO) is one of the best funds available in the large-blend Morningstar Category. As one of the cheapest exchange-traded funds in the category, it tracks the broadly diversified and market-cap-weighted S&P 500. It has a high probability of outperforming the category average over the long term, so it earns a Morningstar Analyst Rating of Gold.

The S&P 500 represents about 80% of the U.S. market by market capitalization, accurately reflecting the composition of the U.S. large-cap market and harnessing its collective wisdom. Large stocks tend to have more research analyst coverage than mid- or small-cap stocks, which tends to make this segment of the market more efficient than mid- or small-cap stocks. Fierce competition between well-informed market participants tends to result in stock prices that reflect publicly available information. However, over short periods, investors may overreact and either drive prices too high or low. Market-cap-weighting will increase or decrease exposure to stocks accordingly. This can at times lead to stock and sector concentration. That said, the fund's broad diversification and low-cost advantage far outweigh these minor disadvantages.

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Venkata Sai Uppaluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.