Every quarter, institutional money managers with at least $100 million invested in the markets are required to file a form 13F with the Securities and Exchange Commission (SEC). These filings represent an itemized breakdown of all the stocks that hedge fund managers buy and sell during the quarter -- providing a glimpse into what companies the "smart money" on Wall Street is flocking toward.
Take Ken Griffin as a prime example. The billionaire CEO of Citadel Advisors is widely celebrated as one of the most successful money managers around. Surely, Griffin and his team know a bit more than everybody else and always pick the best stocks at the most optimal times, right?
Actually, it turns out that sometimes the best opportunities are also the most obvious ones. During the third quarter, Citadel raised its position in the Vanguard S&P 500 ETF (VOO -0.40%) by 277% -- scooping up 398,000 shares. That's right -- one of the most prestigious investors of all time is investing in the S&P 500.
Let's break down why this is a savvy choice by Griffin, and explain why the Vanguard S&P 500 ETF is a no-brainer for individual investors with a long-term horizon.
What makes the Vanguard S&P 500 ETF so great?
Right off the bat, I'd like to make one thing clear. Citadel Advisors has over $95 billion in assets under management (AUM) spread across more than 5,700 positions. While it's interesting that the fund owns a position in the Vanguard S&P 500 ETF, it's also not surprising. With such an enormous portfolio, this particular exchange-traded fund only comprises about 0.30% of the entire Citadel fund.
Nevertheless, the bigger idea I'd like to point out is that Citadel is complementing its individual stock picks with some exposure to the broader market -- thereby insulating some of the fund's vulnerability to more volatile or speculative positions.
One of the reasons I think Griffin may like the Vanguard S&P 500 ETF is based on how it is invested. It is weighted based on market capitalization. This means that larger companies such as Apple, Microsoft, Nvidia, or Eli Lilly have more of an effect on how the fund moves than do smaller stocks. These companies also happen to be growth-oriented. At the same time, the ETF in its entirety offers broad diversification across different industry sectors.
Image source: Getty Images.
How has the Vanguard S&P 500 ETF performed in the long run?
The chart below illustrates the total return of the Vanguard S&P 500 ETF against other leading S&P 500-themed index funds.
VOO Total Return Level data by YCharts.
While the Vanguard S&P 500 ETF is the leader in this cohort, it only narrowly beats out the SPDR S&P 500 ETF Trust over the last 10 years. This isn't entirely surprising since the SPDR S&P 500 ETF also seeks to mimic the returns of the S&P 500 using a market-cap weighted methodology.
But the Vanguard fund edges out its SPDR rival because of a lower cost. With an expense ratio of just 0.03% -- vs. 0.0945% for the SPRDR fund -- the Vanguard S&P 500 ETF is incredibly reasonable.
Why the Vanguard S&P 500 ETF is a no-brainer opportunity
To me, the price that investors are required to pay money managers is only part of the equation. The bigger factor is the outlook of the market. While history is indicating that 2025 could be yet another great year in the market, I wouldn't get too caught up in specifics. Remember, the stock market is a resilient vehicle -- and in the long run, the markets move higher.
Furthermore , the Vanguard S&P 500 ETF has boasted incredibly generous returns over the past decade. That includes when the S&P 500 experienced some notable drops in 2020 during the short-lived COVID-19 recession (shaded in the gray column above). It also includes some prolonged dips in 2022, a year underscored by historically high inflation and the beginning of aggressive interest rate hikes from the Federal Reserve.
Yet even during these challenging periods, the S&P 500 (and the funds shown above) all moved higher. To me, the Vanguard S&P 500 ETF is a no-brainer for investors with a long-term time horizon. It's a great fit for those looking for some passive exposure to the broader markets complementing individual stock positions.
