This VFV vs VOO comparison provides a detailed review of the 2 ETFs that track the S&P 500 index.
Exchange-traded funds (ETFs) are a great way to diversify your portfolio as they provide exposure to multiple asset classes across different markets and sectors. Instead of investing in individual stocks, ETFs help you invest in multiple stocks with a single purchase, saving you cost, time and minimizing your overall portfolio risk.
ETFs come in different flavors with different risk levels, allocations and investment objectives. VFV and VOO are stock-based ETFs tailored to investors with moderate-aggressive risk levels that are looking for exposure to S&P 500.
In addition to tracking the same index, both ETFs have several other similarities that make it challenging to decide which one to choose between VFV and VOO.
But how are they different?
This VFV vs VOO review covers everything you need to know about the ETFs including their allocations, returns and fees.
VFV and VOO: Overview
As of the time of writing this review, VFV and VOO have the following key facts.
|Date of inception||November 2, 2012||September 7, 2010|
|Portfolio manager||Vanguard Investments Canada Inc.||The Vanguard Group|
|Number of stocks||507||507|
|Market capitalization||Large-cap blend||Large-cap blend|
|Risk level||Medium||Moderate to aggressive|
|Exchange||Toronto Stock Exchange||New York Stock Exchange|
Below, we’ll take a deep dive into both ETFs, their similarities and, more importantly, their differences.
Overview of VFV
Vanguard S&P 500 Index ETF is a stock-only ETF of Vanguard Canada that trades on the Toronto Stock Exchange with the ticker “VFV”.
Introduced in 2012, VFV tracks the returns of the US S&P 500 index using Canadian dollars and is traded on the Toronto Stock Exchange.
By tracking this popular equity benchmark index, you can gain exposure to large-cap US companies with your Canadian dollars without the need for expensive currency conversions.
In other words, VFV makes it simple and cost-effective for Canadians to invest in some of the largest and most innovative companies not just in the US, but worldwide.
To achieve its investment objective of providing long-term capital growth, VFV employs index/passive management techniques, with a periodic rebalancing of the portfolio.
Learn more: VFV Review
|VFV Pros||VFV Cons|
|Low fees||High volatility|
|Long-term Positive returns||No international exposure|
|Broad exposure to large-cap US companies|
Overview of VOO
Vanguard S&P 500 ETF (VOO) is also an all-equity ETF that tracks the returns of the US S&P 500 Index. It was founded in 2010 and trades on the New York Stock Exchange with US dollars.
By tracking the returns of the S&P 500 Index, VOO also seeks to invest in large-cap US companies to give investors long-term capital growth.
With 100% equity allocation, VOO has a moderate-aggressive risk tolerance with high potential returns from large-cap companies.
VOO also has one of the lowest management fees you’ll ever come across from ETFs at a rock bottom expense ratio of just 0.03%.
Outside of VOO’s extremely low management expense ratio, you may be wondering how else it differs from VFV, it’s Canadian equivalent.
In the subsequent section, we will take a closer look at how the two ETFs differ to help you make an informed decision.
|VOO Pros||VOO Cons|
|Extremely low MER||Highly volatile|
|Diversified exposure to large-cap US companies||US-only exposure|
VFV vs VOO: Allocations
Both VFV and VOO invest 100% of their funds in US stocks tracking the S&P 500 index. The allocation is market-weighted and split across medium-large US companies.
However, both ETFs invest more funds in large-cap US companies with the top 10 companies accounting for about 30% of their assets under management.
Below are the top companies that VFV invests in as of January 31, 2022.
|Berkshire Hathaway Inc.||1.5%|
|Johnson & Johnson||1.2%|
On the other hand, VOO has the following top holdings as of January 31, 2022.
|Berkshire Hathaway Inc.||1.5%|
|JPMorgan Chase & Co.||1.2%|
|UnitedHealth Group Inc.||1.1%|
There are slight differences in the top holdings of both VOO and VFV but both ETFs invest approximately 30% of their funds in the above top holdings.
That said, both VFV and VOO have similar sector allocations as of January 31, 2022, which are shown below:
Companies in the Information Technology sectors dominate the S&P 500 index. So it is unsurprising that both ETFs are weighted more towards the information technology sector with the least sectors being utilities and materials.
VFV vs VOO: Returns
Both VFV and VOO have provided positive returns since their inception. But since VFV is relatively younger and does not have 10-years returns yet, we can only compare their 1year, 3year and 5year returns.
Below is how the two ETFs compare in this regard as of February 28, 2022:
From the table above, it is clear that VOO has outperformed VFV in terms of returns over the past 5 years even though they track the same index.
Part of the reason for the difference in returns between VFV and VOO are their different expense ratios, withholding taxes on VFV and the relative currency fluctuation of Canadian and US dollars.
In other words, all else equal, VFV will outperform VOO when CAD weakens against the US Dollar – and vice versa.
VFV vs VOO: Dividends
Dividends received in VFV are subject to a 15% withholding tax that goes to the US government. This tax applies even if you hold VFV in your RRSP.
With VOO, the withholding tax will not apply to Canadian investors that hold the ETF in their RRSP. Holding VOO in other investment accounts attracts the tax, but you can offset it by claiming the foreign tax credit when you file your taxes.
Unfortunately, the foreign tax credit only applies to non-registered, taxable accounts. If you hold VOO in your TFSA, RESP or other registered accounts, you won’t be able to claim the tax credit.
You should consider these factors when deciding on which ETF to go with.
If we ignore all the other variables like expense ratio, currency conversion cost and so on, VOO will:
- Outperform VFV for an investor holding them in an RRSP, TFSA, RESP etc
- Have the same returns as VFV for investors holding them in taxable accounts after they claim the foreign tax credit.
VFV vs VOO: Fees
Both VFV and VOO have lower fees compared to other ETFs – a common feature of Vanguard ETFs.
VFV charges an all-in expense, MER, of 0.08%. On the other hand, VOO has a lower MER of 0.03%.
Going by expenses alone, VOO provides a more cost-effective S&P fund than VFV. But the MER does not tell the whole story.
To invest in either ETFs, you may also need to pay some commissions to your brokerage. But these commissions will be similar and probably $0 if you use one of the brokerages that allow free ETF purchases in Canada like Wealthsimple Trade or Questrade.
But there are currency conversion costs to think about with VOO. You’ll need to convert your Canadian dollars to US dollars to buy VOO for a cost of 1.5%-2%. Alternatively, you could use Norbert Gambit to reduce your cost but it is more stressful and takes a few days to complete.
Which is Better: VFV or VOO?
From the above comparison, you may be leaning towards VOO because of its lower expense ratio and better performance in the last 5 years?
In addition to a low MER of 0.03%, VOO has provided relatively higher returns in the last 1-year, 3-year and 5-year than VFV.
But the better ETF for you should come down to your specific needs and situation.
Here are some factors to consider:
While VFV is traded on the Toronto Stock Exchange with Canadian dollars, VOO is traded on the New York Stock Exchange with US dollars. As a Canadian, this simply means that you can save on foreign exchange (FX) fees by investing in VFV.
However, if you’re investing in VOO while in Canada, you’ll constantly have to convert your Canadian dollars to US dollars to invest – a cost of up to 2% depending on your brokerage. This will add up over time and eat into your investment returns.
But if you have a US-dollar source of income or are willing to go through the extra stress of converting cheaply using techniques like Norbert Gambit, you’ll save on these costs and VOO may be the better choice for you.
Either way, VFV is a simpler and less-stressful way to access the S&P 500 index in Canada compared to VOO.
The investment account you use to invest in the ETFs is another important consideration due to the differences in how the US withholding taxes are applied and whether you’ll be able to offset it using foreign tax credit or not.
If you can convert your CAD to USD cheaply and plan to hold the ETFs in VOO, then VOO is the better choice – if you ignore how the Canadian Dollar performs against the US dollar.
Investors get broad exposure to medium- and large-cap US companies with either VFV or VOO. But they only invest in equities, making them highly volatile.
Consider this and how it fits into your investment objectives if you’re thinking of holding either funds alone in your portfolio. But when held as part of a well-diversified portfolio, both ETFs provide good exposure to the US S&P 500 index.
In the end, Canadian investors should choose VFV or VOO by considering their situation and which ETF best meets their needs.
Alternatives to VFV and VOO
The S&P 500 index has produced strong returns in recent years, but not all investors are comfortable investing in just one index. Most investors would benefit from some diversification in their portfolio, and that’s where the asset allocation ETFs come in.
These ETF funds invest in the entire U.S. stock market, giving investors exposure to small-cap, mid-cap, and large-cap stocks across different countries around the world.
If you’re comfortable with an all-equity portfolio, you should consider VEQT and XEQT from Vanguard and BlackRock respectively. Both ETFs invest 100% in global stocks with a large allocation to US and Canadian stocks.
For some exposure to fixed income, there are also growth ETFs that invest 20% of their assets in bonds and other fixed-income securities.
One example is the Vanguard Growth ETF Portfolio (VGRO), which invests in over 7000 stocks from both developed and emerging markets around the world.
Granted, you can hold VFV or VOO as part of a well-diversified portfolio. However, you’ll need to spend some extra time and stress with rebalancing the portfolio.
Asset allocation ETFs solve this problem by automatically rebalancing the portfolio regularly.
Bottom line is – If you’re looking for an alternative to VFV or VOO, consider investing in asset allocation ETFs. These funds offer diversification and convenience, and they can help you reach your financial goals!
- Asset Allocation ETFs: How Do They Work?
- Vanguard All-Equity ETF Portfolio VEQT Review
- iShares Core Equity ETF Portfolio XEQT Review
- iShares Core Growth ETF Portfolio XGRO Review
Verdict on VFV vs VOO
That brings us to the end of this VFV and VOO comparison. As you can see, their major differences lie in their management fees, past returns, listing currency and how the withholding tax will be applied.
Hopefully, you now have all the information you need to know which of them suits your investment objective. If you need more help in determining the best ETF for you, kindly leave a comment below.
Please explore our existing posts to learn more about other investment products and services in Canada, such as: