Four stocks are 27.1% of VOO, past the 25% cap for diversified funds
Vanguard’s latest filing still classifies the ETF as diversified. Loss o that status would not change the fund’s holdings or its taxes.
Key takeaways
Four stocks made up 27.1% of Vanguard S&P 500 ETF (VOO) on Sept. 30, more than the 25% the cap the Investment Company Act of 1940 allows for diversified funds for positions above 5% of their assets. Three months earlier, the fund was under that line.
Nvidia was 8.4% of the fund, Apple 7.4%, Microsoft 5.8% and Alphabet 5.5%, according to Vanguard’s Sept. 30 fact sheet. Microsoft became the fourth holding above 5% during the quarter; it was 4.3% on June 30.
The large weighting of fund assets in just four holdings sets up a potential conflict for VOO: Under the 1940 Act, a diversified fund must keep no more than 5% in any one company. The rule doesn't apply to portfolio weighting changes due to price appreciation — only to new purchases that cross the 5% threshold (15 U.S.C. 80a-5).
That's not an issue for closed-end funds, which don't take in new money. But as an ETF, VOO has a different problem: to track its target index and put its newly-invested, incoming cash to work (and potentially to put dividend income to work as well), VOO must keep buying all four stocks as investors add money.
About VOO
VOO is the exchange-traded share class of Vanguard 500 Index Fund. That fund’s statement of additional information (SAI), a filing that supplements the prospectus says the fund may become non-diversified solely because the weights of stocks in the S&P 500 change.
If the fund does lose its diversified status, holders would notice little. The Securities Exchange Commission said in a 2019 no-action letter that they would not recommend enforcement against an index fund that becomes non-diversified without a shareholder vote, if the fund discloses the possibility and notifies holders. But as we note above, VOO has done so in its prospectus.
The fund would keep holding each stock at its index weight. Its tax status depends on a separate Internal Revenue Code test: At least half of a fund’s assets must be in positions of 5% or less, and no more than 25% may be in any one company. On Sept. 30, positions of 5% or less made up about 73% of VOO, and Nvidia, its largest holding, was 8.4%.
Four companies each sat above 5% of the fund
The purchase rule
Vanguard states in its Statement of Additional Information of April 28th, 20226 that he Fund may not purchase securities if it would result in that holding exceeding 5% of fund assets — except as necessary to track the target index.
However, Vanguard's prospectus of the same date also allows for purchases of securities already representing over 5% of the portfolio “as may be necessary to approximate the composition of its target index,"
This keeps those purchases within the policy.
If the fund becomes non-diversified, the 1940 Act would no longer cap its large positions, and its concentration would rise or fall with that of its benchmark index’s. However, the Investment Company Act's 25% limit on any one company would still apply.
No shareholder approval vote anticipated
If matching the index takes the fund from diversified to nondiversified, the April 28 statement of additional information says shareholder approval will not be sought.
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Frequently asked questions
How concentrated was Vanguard S&P 500 ETF on Sept. 30, 2026?
Ten companies were 40.6% of its net assets, up from 37.9% on June 30, and four of them were each above 5%.
Does holding four stocks above 5% break the fund's diversification rule?
Not as Vanguard states the rule, because the 5% limit applies to a purchase, with an exception for matching the index, and not to how big a holding gets after prices move.
Is the fund now nondiversified?
No, Vanguard classified it as diversified as of April 28, 2026, though its prospectus says the fund could become nondiversified just by tracking the index.
Would shareholders get a vote if the fund became nondiversified?
No, the statement of additional information says Vanguard will not ask shareholders to approve the change if it happens because the fund is matching the index.
