If you’re looking for exposure to the US share market, chances are you’ve come across VTS and IVV.
They’re two of the most popular US-focused ETFs available to Australian investors, and at first glance, they appear remarkably similar. Both are low-cost, passive, ASX-listed US ETFs that give you access to many of America’s biggest companies.
But there are some important differences beneath the surface, and the biggest isn’t necessarily performance. It’s what you’re actually buying, how much diversification you’re getting and the administrative requirements that come with each option.
For long-term investors, understanding these differences can help you choose the ETF that best aligns with your goals and investing philosophy.
Let’s unpack it.
What are VTS and IVV?
Both VTS and IVV offer exposure to the US stock market, but each ETF captures a different slice of it.
- VTS is the Vanguard US Total Market Shares Index ETF. It tracks almost the entire investable US share market, including large, mid and small-cap companies.
- IVV is the iShares S&P 500 ETF. It tracks the S&P 500 Index, which contains around 500 of the largest publicly traded companies in the United States.
Both ETFs are passive investments. Neither attempts to pick winners or beat the market. Instead, they aim to track an index as efficiently as possible.
The key difference is simple:
- IVV owns America’s largest companies
- VTS owns America’s largest companies, plus thousands of smaller ones
In practice, this means VTS provides exposure to a much broader slice of the US economy. The largest companies still make up a significant portion of the fund. However, investors also gain access to medium-sized and smaller businesses that may not yet be household names.
IVV, on the other hand, focuses exclusively on large-cap companies. These are generally mature businesses with established market positions and significant influence over the broader economy.
Both approaches have their merits. The question is whether you want exposure to the largest companies only or the entire market.
How different are they really?
Not as different as you might think.
The US share market is heavily concentrated in its largest businesses. Companies like Apple, Microsoft, NVIDIA, Amazon and Meta make up a significant proportion of both ETFs.
That means VTS and IVV often move in similar directions. When large US technology companies perform well, both ETFs tend to benefit. When those companies struggle, both funds can experience declines.
The difference is what sits underneath those mega-cap companies.
- With IVV, you’re effectively saying: “I’m happy owning the 500 largest businesses in the US.”
- With VTS, you’re saying: “I want exposure to the entire US market, not just the biggest companies.”
Neither approach is inherently better. They’re simply different ways of capturing the growth of the US economy.
It’s also worth remembering that the S&P 500 already represents a large proportion of the total value of the US share market. That’s one reason why performance differences between VTS and IVV have historically been relatively modest. For many investors, the distinction comes down less to expected returns and more to diversification preferences.
Why might broader exposure matter?
That’s the million-dollar question.
Historically, large-cap US companies have generated excellent returns. In fact, the S&P 500 has been so dominant over the past decade that it’s easy to assume bigger companies will always outperform.
But markets don’t move in straight lines. There have been periods when smaller companies outperformed larger ones. At other times, market leadership broadened beyond a handful of mega-cap stocks. And nobody knows which part of the market will lead throughout the rest of 2026 and over the coming years.
That’s one reason some investors prefer VTS. By owning thousands of companies rather than hundreds, they gain exposure to more of the market and reduce the chance of missing whichever segment performs best in the future.
Broader diversification can also provide exposure to emerging businesses that may become tomorrow’s market leaders. Many of today’s largest companies started out as relatively small businesses before growing into global giants. Of course, broader exposure doesn’t guarantee higher returns. Smaller companies can be more volatile than established blue-chip businesses.
Others are perfectly comfortable sticking with the S&P 500. Their view is that America’s largest companies already operate globally and provide plenty of diversification on their own. Several S&P 500 companies also generate substantial revenue outside the United States. Businesses like Apple, Microsoft and Coca-Cola serve customers around the world, meaning investors aren’t solely reliant on the US domestic economy.
Both perspectives are reasonable. The important thing is understanding what you’re buying and why you’re buying it.
The biggest difference: tax and administration
For many Australians, the most practical difference between VTS and IVV isn’t the index but the fund structure. While discussions about diversification and market exposure are important, administrative considerations can have a real impact on your investing experience.
VTS is a US-domiciled ETF
Although VTS trades on the ASX, it’s legally a US fund. This means investors generally need to complete a W-8BEN form so the correct US withholding tax rate is applied to dividends.
The form isn’t particularly difficult, but it does need to be renewed periodically. For some investors, this is a minor inconvenience. For others, it’s an unnecessary complication they’d rather avoid.
US-domiciled investments can also create additional considerations around US estate tax rules, particularly for larger portfolios. While these rules won’t affect every investor, they’re worth understanding before investing, especially if you expect your portfolio to grow significantly over time.
If you’re unsure how any of this could apply to your circumstances, it may be worth seeking professional tax advice.
IVV is an Australian-domiciled ETF
The ASX-listed version of IVV is structured differently. Because it’s Australian-domiciled, investors generally avoid much of the additional paperwork associated with US-domiciled ETFs. For some investors, that simplicity is a major advantage. Others are happy to accept the extra administration associated with VTS in exchange for broader market exposure.
Neither choice is necessarily right or wrong. It depends on how much value you place on simplicity versus broader market coverage. For investors building a long-term portfolio, reducing complexity can make it easier to stay focused on the bigger picture.
What about fees?
Both ETFs are low-cost.
While fee differences can change over time, they’re generally small enough that they shouldn’t be the primary driver of your decision. A difference of a few basis points matters far less than having a strategy you understand and can stick with over the long term.
Regular contributions and staying invested through market downturns are likely to have a greater impact on your results. This is an important point because investors often spend a lot of time comparing tiny fee differences while overlooking factors that matter more.
For example:
- How consistently you invest
- Your overall asset allocation
- Your ability to avoid emotional decisions
These factors can have a much larger influence on long-term outcomes than a marginal difference in management fees.
Should you own both ETFs?
Many investors assume owning both VTS and IVV increases diversification, but in reality, the overlap is substantial. Because the largest companies in the S&P 500 also make up a significant portion of VTS, holding both often means doubling down on the same businesses. For example, if Apple, Microsoft and NVIDIA are among the largest holdings in both funds, owning both ETFs doesn’t necessarily provide dramatically different exposure.
Before buying both, ask yourself: “What am I trying to achieve that one ETF isn’t already doing?”
If your goal is broader US exposure, VTS may already provide that. If your goal is exposure to large-cap US companies, IVV may already achieve it.
In many cases, choosing one and complementing it with other investments may provide more meaningful diversification than owning both. For example, investors seeking broader diversification might consider adding exposure to international markets outside the US, Australian shares or bonds, depending on their goals and risk tolerance.
Owning a larger number of investments doesn’t automatically mean you’re diversified. True diversification comes from holding assets that respond differently to changing market conditions.
Are you looking for US exposure or global exposure?
This is perhaps the most important question of all. Many investors compare VTS and IVV because they know they want international shares, although US shares and international shares aren’t necessarily the same thing. The United States represents a large portion of global share markets, but it’s still only one country.
The US market has delivered strong returns over long periods and is home to many of the world’s most influential companies. That’s one reason it features prominently in many investment portfolios.
However, concentrating solely on one country can introduce risks. Different countries and regions experience different economic conditions and market cycles. Diversifying internationally can help reduce reliance on any single market.
If your goal is broad international diversification, a global ETF may be worth considering alongside (or instead of) a US-only ETF. Global ETFs typically provide exposure to companies across multiple markets, helping investors spread risk more broadly.
US-focused investing isn’t necessarily the wrong approach. The key is understanding exactly how it fits within your broader portfolio.
Ask yourself:
- Is this intended to be my core international holding?
- Am I comfortable concentrating heavily in the US market?
The answers will vary from investor to investor.
Invest in VTS or invest in IVV: Which should you choose?
The answer to VTS or IVV depends on what matters most to you.
Investing in VTS may appeal if you:
- Want exposure to the entire US market
- Prefer broader diversification across large, mid and small-cap companies
- Are comfortable with the additional tax and administrative considerations that come with a US-domiciled fund
Investing in IVV might be more desirable if you:
- Prefer a simpler Australian-domiciled structure
- Want exposure to America’s largest listed companies
- Value administrative simplicity
Neither ETF is objectively better. Both provide low-cost access to the US share market and follow passive investing principles. The best choice is the one that aligns with your investing philosophy and fits naturally within your broader portfolio.
It’s also worth remembering that choosing between VTS and IVV is unlikely to be the factor that determines your investing success. Far more important are the habits you build over time: investing regularly, maintaining diversification and staying invested through periods of uncertainty.
In the end, successful investing rarely comes down to choosing the perfect ETF. More often, it’s about creating a portfolio you can stay committed to through every market cycle and giving time and consistency the chance to work in your favour.
General information disclaimer
This article is for general informational purposes only and does not take into account your objectives, financial situation or needs. Investing involves risk, including the risk of loss. Rules, products and market conditions can change, so consider seeking advice from a licensed professional and checking relevant official sources before making decisions.
