VOO shares its portfolio with other Vanguard 500 index fund share classes

Vanguard S&P 500 ETF, VOO, is an exchange-traded class of shares issued by the Vanguard 500 Index Fund. But the same fund has three other share classes: Admiral Shares (VFIAX), which charge 0.04% a year and generally require $3,000 to open an account, Investor Shares (VFINX), and Institutional Select Shares (VFFSX).

Potential ramifications for VOO shareholders

VOO shares its portfolio with the fund’s mutual fund share classes — and potentially, that could cost VOO holders money. When mutual fund shareholders buy or redeem, the fund buys or sells stocks and pays the trading costs. The fund also holds cash to meet those redemptions, creating a drag on returns over time.

If the fund has to sell stocks at a gain to raise cash to meet redemptions, it must pay out those capital gains to every share class, including VOO holders, who then owe tax on them in a taxable account.

That's not an issue with stand-alone ETFs that don't share a portfolio with conventional old-school mutual funds.

So far, the fund has avoided having to do that. It paid no capital gains distributions to ETF holders in any of the five years through 2025. When authorized participants redeem ETF shares, the fund usually hands them stocks rather than cash. That lets the fund unload shares it bought at low prices without selling them, which defers the tax on those gains.

You can convert other share classes to VOO, tax free.

Holders of the fund’s mutual fund shares can convert them to ETF shares of equal value. The conversion is generally not taxable when done through Vanguard Brokerage Services. ETF shares cannot be converted to mutual fund shares.

Individual investors cannot buy the shares from the fund or sell them back to the fund. Only authorized broker-dealers can do that, at net asset value and in large blocks. Everyone else buys and sells the shares on NYSE Arca.

The record against the index

Vanguard's month-end figures as of September 30 showed the fund's net asset value return, with dividends reinvested, 0.03 percentage points behind the S&P 500 for the year to date. The fund returned 12.72%. The index returned 12.75%.

The shortfall against the index was 0.04 percentage points a year over one, three, five and ten years, and since the ETF shares started in September 2010. Over ten years the fund averaged 15.29% a year, against 15.33% for the index. From that start, the averages were 14.94% and 14.98%.

In 2022, a down year, Vanguard's figures as of June 30, 2026 show the fund returned -18.15% and the index returned -18.11%.

Net asset value is the value of the fund's holdings per share, after liabilities. The trading price can sit a little above or below it. On Friday, October 9, the shares closed at $715.59, five cents above that day's net asset value of $715.54.

The fund pays a dividend four times a year. The latest was $1.8226 a share on September 30, after $1.9622 in June. The last four payments totaled $7.4282 a share, which is 1.04% of the October 9 closing price.

Four ways to own the same stocks

Three other large funds track the same index.

On $10,000, that is $2 a year for SPYM, $3 for VOO and IVV, and $9.45 for SPY. Vanguard's figure is from the April 28 prospectus. iShares states 0.03% in its prospectus. State Street states 0.02% and 0.0945% on its fund pages.

SPY is a unit investment trust. State Street's semi-annual report for the half-year ended March 31, 2026 says the trust was created under New York law so an investor could buy a security representing a proportionate undivided interest in the portfolio, a slice of substantially all of the index stocks, held in substantially the same weights. State Street dates the trust to January 22, 1993.

iShares reported $891.8 billion in IVV as of Thursday, October 8. State Street reported $817.2 billion in SPY and $178.5 billion in SPYM that day.

Under etf.net's grading method, VOO is graded an A and ranks third of 14 in the category labeled S&P 500. The grade compares a fund only with others making a similar promise. That category also includes funds that weight the companies differently, among them one that weights each company equally and one that caps any company at 3%.