Exchange-Traded Funds (ETFs) like the Vanguard S&P 500 ETF (VOO) are diversified funds that trade on an exchange similar to individual stocks. 

Why Choose an ETF Over Mutual Fund?

As the name implies, the ETF is constructed in a way to replicate the performance of an underlying index. And because ETFs cover a broader range of indexes, they provide ETF investors significantly more investing options than those who invest solely in a mutual fund.

Where Things Stand

The Vanguard S&P 500 ETF, which has $234.3 billion in net assets, is designed to track the performance of stocks in the S&P 500 Index, representing 500 of the largest U.S. companies. The fund aims to closely track the index’s return, which is considered a gauge of overall U.S. stock returns.

As of May 31, the VOO consisted of 509 individual holdings. The technology sector accounts for about 20.4% of the overall construct, while financials rank second with a 16.3% exposure. Healthcare and consumer discretionary rank third and fourth, respectively with 14.7% and 12.6%.

Why the VOO?

The VOO fund provides investors high potential for investment growth. But the fund's share value can rise and fall more sharply than that of funds holding bonds. Given the potential for volatility, the fund is more suited for investors with long-term goals who are seeking high returns. The VOO pays a 2.11% annual dividend yield, compared to a 2.00% yield for the S&P 500 index. (See also: A Look At Vanguard's S&P 500 ETF.)

Notable Holdings

Tech giants Apple, Inc. (AAPL), Alphabet Inc. (GOOGL) and Microsoft Corporation (MSFT) account for the fund's top-three slots, while Exxon Mobil Corporation (XOM), Johnson & Johnson (JNJ) completes the top five. General Electric Company (GE) and Amazon.com, Inc. (AMZN) rank sixth and seventh, respectively, while Facebook, Inc. (FB), Berkshire Hathaway Inc. (BRK.A) (BRK.B), and AT&T, Inc. (T) completes the top ten.

The Bottom Line

Whether you're a novice investor who is just getting started or a sophisticated institutional money manager, ETFs can be used for any investment strategy. The VOO closed Wednesday at $192.45, up 0.63%. The fund, created on Sep 7, 2010, has returned 2.92% year to date, compared with a 2.73% year-to-date rise in the S&P 500 index (SPX). The VOO has risen 1.18% over the past twelve months, while the S&P 500 has risen 1.50%.