The Vanguard Large-Cap Index Fund (Admiral Shares) (symbol VLCAX) and the Vanguard Large-Cap ETF (symbol VV) are two of the largest and most popular large-cap index funds. Some compare VLCAX vs VV not realizing that they are just two different share classes of the same portfolio.
A quick reminder that this site does NOT provide investment recommendations.
The Short Answer
VLCAX and VV are different share classes of the same portfolio. The decision to buy one or the other depends on investor-specific factors (some of which are listed below).
The Longer Answer
Vanguard ETFs are structured as share classes of their mutual funds. This is a patented structure that is scheduled to expire in 2023, so we may see this structure more frequently in the near future. In other words, VLCAX and VV are not two funds pursuing an identical strategy; they are the same fund!
Historical Performance: VLCAX vs VV
VV was launched on January 27, 2004, while VLCAX was launched a few days later on February 2, 2004. Since that time, performance has been identical: 9.31% vs 9.30% annually. Despite changes in fees and expenses over this time period, there is only about a half percent difference in cumulative performance since inception! Looking at the chart of VLCAX vs VV below, it is obvious that they are identical.
Differences Between VLCAX and VV
Since the two funds are actually two share classes of the same fund, I will skip the usual comparisons here. The geographic exposures, sector weights, market cap coverage so on is identical because the two funds are shares in the same portfolio. There are some resources on the internet indicating otherwise, but these are incorrect.
Factors to Consider
ETFs are free to trade at many brokers and custodians, including Vanguard. However, many brokers and custodians still charge commissions and/or transaction fees to buy/sell mutual funds. To my knowledge, Vanguard does not participate in the pay-to-play arrangements that would allow their mutual funds to trade for free on many platforms. So if an investor account is at Vanguard, it is free to trade VLCAX or VV. However, only VV is free to trade in non-Vanguard accounts.
There is a bid-ask spread when trading ETFs, but this spread is typically less than .04% for VV and individual investor trades will not generally be large enough to “move” the market. In the case of VV, individual investors should not have a problem trading.
Tax Efficiency & Capital Gain Distributions
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). However, since Vanguard ETFs are a share class of their mutual funds, the mutual funds are able to benefit from this feature of the ETF. In other words, VV is able to extend its tax benefits to VLCAX.
VLCAX has never paid a capital gain distribution! I noticed some posts on the internet saying that VV is more tax-efficient than VLCAX, but this incorrect as neither fund has ever made a capital gains distribution.
Tax Loss Harvesting
My personal preference is to keep a portfolio entirely mutual funds or entirely ETFs, due to the mechanics of settlement during tax loss harvesting. If an ETF has declined in value and an investor sells it, the trade and cash proceeds will not settle for two business days (T+2). That investor may want to “replace” the sold ETF immediately and attempt to buy another ETF or mutual fund simultaneously.
However, mutual funds settle on T+1 basis, so cash for the mutual purchase would be due in one business day (which is one day earlier than the cash from the ETF sale is received). This can obviously cause problems and (even though this issue can be addressed with careful planning) I find it easier to keep accounts invested in similar vehicles. In this case, if a portfolio is all mutual funds, I might lean more towards VLCAX. If all ETFs, I might lean more towards VV.
On this topic, investors should probably avoid using these two funds as tax loss harvesting substitutes for one another since they would likely be considered “substantially identical.”
VLCAX does have a stated minimum initial purchase of $3,000, so that may be a factor for some investors looking to initiate a position. The minimum purchase size for VV is typically one share, although fractional shares are becoming more common.
Investors can trade ETFs intraday, as well as in the pre-market and after-hours trading sessions. Investors can only buy/sell mutual funds once per day. This is not necessarily a major factor for long-term investors however.
Final Thoughts: VLCAX vs VV
VLCAX and VV are literally the same. However, investors should consider the above factors when deciding which one is best for them.
Investors curious about Vanguard’s small-cap funds may want to read our comparison of VSMAX vs VB.