How Index Fund Benchmarks Are Selected
VTI and ITOT are both 'total U.S. market' funds, yet they track different indexes built by different providers. The benchmark a fund chooses quietly decides what you actually own.
Don't have time? Here's what you need to know:
- 1Index funds track third-party benchmarks from providers like S&P, CRSP, MSCI, and FTSE Russell, each with its own rules.
- 2VTI (CRSP) and ITOT (S&P) are both total-market funds but follow different rulebooks, so holdings differ slightly.
- 3Provider choice barely matters for broad U.S. funds but is decisive for international, factor, and smart-beta funds.
- 4Read the fund's named index in its fact sheet — for niche funds the methodology is the product, not a footnote.
The Index Behind Every Index Fund
An index fund is only as good as the index it tracks, and that index is built by a third-party provider — S&P Dow Jones Indices, MSCI, CRSP, FTSE Russell, and others — each with its own rulebook. The provider decides which companies qualify, how they are weighted, and when the list is updated. Two funds can both call themselves 'total U.S. stock market' funds and still hold different securities because they follow different providers' definitions.
This matters because the benchmark determines what you actually own. The differences between major providers are usually modest for broad U.S. funds, but they are real, and they grow larger in areas like emerging markets where providers disagree about basic questions — such as whether South Korea counts as developed or emerging.
How the Major Index Providers Differ
Consider the U.S. large-cap space. The S&P 500 is not simply the 500 biggest companies — a committee selects members and requires positive earnings and other criteria, so it is partly rules-based and partly judgment. A CRSP or MSCI large-cap index uses a purely rules-based market-cap cutoff with no committee and no earnings screen. The result is overlapping but not identical lists, which is one reason a CRSP-based fund and an S&P-based fund tracking 'large caps' can diverge slightly.
The same logic shapes total-market funds. VTI tracks a CRSP U.S. total-market index, while ITOT tracks an S&P total-market index. They hold a very similar universe and their returns are nearly identical, but the exact constituent counts and the timing of additions differ because the rulebooks differ. The table below sketches how the major providers approach index construction.
| Provider | Notable indexes | Approach |
|---|---|---|
| S&P Dow Jones | S&P 500, S&P Total Market | Committee selection plus rules (earnings screen for S&P 500) |
| CRSP | CRSP US Total Market (used by VTI) | Purely rules-based, with banding to reduce turnover |
| MSCI | MSCI USA, MSCI EAFE, MSCI Emerging Markets | Rules-based global classification standard |
| FTSE Russell | Russell 2000, FTSE Global indexes | Rules-based; Russell rebuilt annually in June |
Where Benchmark Choice Matters Most
For broad U.S. equity funds, the practical impact of provider choice is small — VTI and ITOT will track each other closely for decades. The differences become consequential in two places. First, international classification: providers disagree on whether certain countries are developed or emerging, so an MSCI-based international fund and a FTSE-based one can hold different countries entirely. South Korea is the famous example — developed under FTSE, emerging under MSCI.
Second, factor and 'smart-beta' indexes, where the entire return depends on how the provider defines value, growth, quality, or momentum. Two value funds tracking different providers' definitions of 'value' can own meaningfully different stocks and post different returns. There, the benchmark methodology is not a footnote — it is the product.
Tip: For broad U.S. funds, pick on fees and ignore the provider. For international, factor, and smart-beta funds, read the index methodology — that's where two similarly named funds can genuinely diverge.
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How to Check What a Fund Actually Tracks
The fund's name tells you the marketing pitch; the prospectus and fact sheet tell you the truth. Every index fund names its target index, and a quick read reveals the provider, the selection rules, and how the index is weighted and reconstituted. For broad funds this is reassurance; for niche, international, or factor funds it is essential due diligence.
When you compare two similarly named funds, look at the underlying index, the number of holdings, and the country or sector breakdown rather than the label on the front. If the indexes and holdings line up, choose the cheaper fund. If they diverge — different countries, different factor definitions — then you are choosing between two genuinely different strategies, and the benchmark is the decision.
Important: Don't assume two funds with the same name own the same things. 'Emerging markets' and 'value' mean different things to different index providers, and the gap can change which countries or stocks you hold.
Frequently Asked Questions
Why do two 'total market' funds hold different stocks?
Because they track different indexes built by different providers. VTI follows a CRSP total-market index and ITOT follows an S&P total-market index, each with its own rules for inclusion, weighting, and timing. The universes overlap heavily and returns are nearly identical, but the exact holdings and constituent counts differ.
Is the S&P 500 just the 500 biggest U.S. companies?
Not exactly. A committee selects the members and applies criteria such as positive recent earnings and minimum liquidity, so it's partly rules-based and partly judgment. That's different from a purely rules-based index that simply takes the largest companies by market cap with no committee and no earnings screen.
Does it matter which index provider a fund uses?
For broad U.S. equity funds, very little — different providers' large-cap and total-market indexes track each other closely. It matters most for international funds, where providers disagree on which countries are developed versus emerging, and for factor or smart-beta funds, where the provider's definition of value, growth, or quality drives the entire return.
Where do I find which index a fund tracks?
In the fund's fact sheet and prospectus, which name the target index, its provider, and its construction rules. The fund's marketing name can be vague, so checking the underlying index — plus the number of holdings and country or sector breakdown — is the reliable way to know what you'd actually own.
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Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.