VFV ETF Review: The Best ETF in Canada

The S&P 500 Index ETF, or VFV ETF for short, is a US-equity ETF. It seeks to replicate the performance of the S&P 500 Index and tracks the performance of large-capitalization U.S. stocks

It is un-hedged as opposed to VSP which is hedged to the Canadian dollars. Both trade in Canadian dollars but the VSP ETF will have currency trading on top to counter-balance the currency exchange.

Should you hedge or un-hedge the S&P500 ETF? It’s a question everyone ask and it’s not clear if one is better then the other but a great explanation of the complexity and benefits can be found at PWL Capital.

Pros of Vanguard VFV ETF

  • Passively managed portfolio
  • Low-cost ETF with an MER of just 0.08%.
  • Uses efficient, cost effective index management techniques.
  • It invests in ~507 U.S. stocks with a median market cap value of over $232 billion.

Cons of Vanguard VFV ETF

  • 100% Equity, could be volatile
  • No international exposure. The fund invests 100% in the USA.

Vanguard VFV ETF Facts

  • Inception Date: November 2, 2012
  • Benchmark: S&P 500 Index
  • Net Assets: $4,663M
  • MER: 0.08%
  • Distribution Yield: 1.12%
  • Dividend Schedule: Quarterly

Vanguard VFV ETF MER – Management Expense Ratio 

VFV’s management fee stands at 0.08% and MER is 0.08% which is much cheaper than robo-advisors. VSP that tracks the same stocks as VFV but is CAD-hedged and has a 0.09% MER.

The MER is what Vanguard takes to manage the fund for you. It’s much cheaper than mutual funds and in some cases cheaper than investing on your own.

Mutual funds can charge over 2% and it robs you of your returns. It’s time to ditch your mutual funds and switch to ETF ASAP. Many brokers such as Questrade offer free ETFs. Couple the free ETFs with low MER and you are ahead of many.

Vanguard VFV ETF Performance

The annual rate of return for Vanguard VFV ETF since inception is more than 18%. Its performance has been in line with the broader S&P500 index in the last five years.

Investing in the S&P500 is simple and works. The only question is whether you hedge or not.

The debare over CAD-Hedged or not is out there and most of it is based on your understanding and expectation of the USD currency. It’s not worth fussing over it in my opinion.

Take your TFSA account as an example. The rules are the same for everyone and I mean everyone. The growth is ultimately a factor of your investment performance provided you make your TFSA contribution limit every year. The annual performance of an ETF matters as you can see below the growth over 20+ years.

wdt_ID Year Yearly Limit Cumulative 5% Growth 10% Growth Dividend Earner Spousal
1 2009 5,000 5,000 5,250 5,500 Not Tracked Not Started
2 2010 5,000 10,000 10,762 11,550 Not Tracked Not Started
3 2011 5,000 15,000 16,550 18,205 Not Tracked Not Started
4 2012 5,000 20,000 22,628 25,525 Not Tracked Not Started
5 2013 5,500 25,500 29,534 34,128 $41,742 Not Started
6 2014 5,500 31,000 36,786 43,590 $52,820 Not Started
7 2015 10,000 41,000 49,125 58,949 $56,307 Not Started
8 2016 5,500 46,500 57,356 70,984 $70,200 Not Started
9 2017 5,500 52,000 65,999 84,034 $78,900 $13,308
10 2018 5,500 57,500 75,074 98,487 $96,937 $58,818
11 2019 6,000 63,500 85,128 114,986 $129,467 $82,596
12 2020 6,000 69,500 95,684 133,030 $153,993 $95,906
13 2021 6,000 75,500 106,769 152,933 $181,601 $113,194
14 2022 6,000 81,500 118,407 174,827 $169,702 YTD $128,018 YTD
15 2023 6,500 88,000 131,152 199,459
16 2024 6,500 94,500 144,536 226,555
17 2025 6,500 101,000 158,587 256,361
18 2026 6,500 107,500 173,342 289,147
19 2027 7,000 114,500 189,359 325,762
20 2028 7,000 121,500 206,177 366,038
21 2029 7,000 128,500 223,836 410,342
22 2030 7,500 136,000 242,902 459,626
23 2031 7,500 143,500 262,923 513,838
24 2032 7,500 151,000 283,944 573,472
25 2033 7,500 158,500 306,016 639,069
26 2034 7,500 166,000 329,192 711,226
27 2035 7,500 173,500 353,526 790,599
28 2036 7,500 181,000 379,078 877,909
29 2037 7,500 188,500 405,906 973,950
30 2038 7,500 196,000 434,077 1,079,595

Vanguard VFV ETF Holdings

VFV is a pure stock-based fund, in sharp contrast to Vanguard’s VGRO and iShares XGRO that have 80% equity and 20% fixed income assets. The portfolio asset mix may be reconstituted and rebalanced from time to time at the discretion of the sub-advisor.

About 82% of the fund’s allocation is towards large-cap stocks, followed by 12% in medium-cap stocks. The balance (~6%) is in medium to large and medium- to small-cap U.S. stocks.

VFV’s top investments include Apple Inc, Microsoft Corp., Facebook Inc., Alphabet Inc., Berkshire Hathaway, Tesla, NVIDIA Corp., and JP Morgan & Chase & Co. as of June 2021.

wdt_ID Sector Ratio
1 Financials 11.30
2 Utilities 2.40
3 Communication Services 11.10
4 Consumer Cyclical 12.30
5 Energy 2.80
6 Basic Materials 2.60
7
8 Industrials 8.50
9 Consumer Defensive 5.90
10 Real Estate 2.60
11 Cash 0.00
12 Technology 27.40
13 Healthcare 13.00

Why hold Vanguard VFV ETF

VFV ETF is a good way for Canadian investors to diversify their holdings and gain exposure to some of the most popular blue-chip companies.

It provides exposure to large US stocks specifically inclined towards IT, healthcare, consumer discretionary, and financial sectors. The ETF entails a medium level of risk and is suitable for investors seeking long-term capital growth and do not mind stock market volatility.

Consider that the S&P500 companies are all operating in many countries and countributing to the global economy. It’s like investing in the world.

If you want the dividends, it’s not clear you will get the same growth but the the best banks and the best utility stocks will give you more income.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.