In this post, we will review a popular index ETF on the TSX: the Vanguard S&P500 Canadian Hedge (VSP ETF). We will first explain what’s an index ETF. Then, we will discuss VSP’s historical performance, fees and holdings. Finally, we will compare VSP against similar ETFs.
What’s an index ETF
There are several types of ETFs. Index ETFs are the king of the hill. The first-ever ETF introduced to a North American Exchange was an index ETF. Index ETFs offer exposure to many securities and sometimes to a whole stock exchange at a meager cost. Their main goal is to acquire, on your behalf, all the securities that constitute a specific index to achieve the same return of the tracked index minus the fees.
VEQT review: Vanguard All-Equity ETF Portfolio
Best ETF Canada: Top 7 offered by BMO
Advantage of Index ETFs
One significant advantage of owning an index ETF is low fees. The manager is simply replicating the index’s performance either by acquiring directly or indirectly (using derivatives) the constituents of the index. There is no additional effort involved in the selection process, thus no need to generously compensate the portfolio manager. It might also be pertinent to know that empirical studies have consistently shown that active portfolio managers rarely beat the S&P 500 index in the long term. In other words, only a few managers can outguess the market in the long run.
VSP ETF Investment objective
Vanguard S&P 500 Index Canadian Hedge ETF seeks to track the performance of a broad U.S. equity index that measures the investment return of large-capitalization U.S. stocks. The S&P 500 Index, or the Standard & Poor’s 500 Index, is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S.
The S&P 500 is an excellent index because most of its constituents are large, established US corporations. Besides, It’s well-diversified across various sectors of the US economy. The S&P 500 is widely regarded as the best gauge of large-cap U.S. equities. It can be easily used to express an opinion on the US economy in general. In other words, if you are bullish on the performance of the American economy in the long term, it’s probably the best index for you.
What’s a Canadian hedge ETF?
When the manager has to replicate a U.S. index such as the S.P. 500 or the Nasdaq 100. It must acquire these assets in U.S. dollars. So, on a fairly regular basis, the fund has to convert the funds available in Canadian dollars into U.S. dollars. These conversions may be beneficial or have a negative impact depending if the Canadian dollar has appreciated or depreciated.
Many investors want to reduce this risk. To meet their needs, the majority of ETFs that reproduce a U.S. index offer a “hedged” version of their funds and sometimes another version that is traded only in U.S. dollars. Coverage acts as a kind of insurance. See the scenarios presented below:
Scenario 1: Value of Canadian $ appreciated | Scenario 2: Value of Canadian $ depreciated | |
| Non hedged ETF | Index return Minus foreign exchange loss | Index return Plus foreign exchange gains |
| Hedged ETF | Index return | Index return |
| US $ ETF | Index Return The investor chooses when to convert | Index Return The investor chooses when to convert |
MER and Asset under management
| Name | MER | AUM | |
| VSP | Vanguard S&P 500 Index CAD-hedged | 0.09% | 1,575 |
| XSP | Ishares Core S&P 500 Index CAD hedged | 0.10% | 7,240 |
| ZUE | BMO S&P 500 Hedged to CAD Index ETF | 0.09% | 1,458 |
VSP, ZUE and XSP have very low MER. Considering the quality of the portfolio of securities held by these ETFs, the low MER makes them very attractive to investors.
All-in-one ETFs are the Best ETF Canada 2022
Historical performance (VSP ETF)
VSP is slightly ahead in terms of long-term performance. However, since all three ETFs track the same index and it’s understandable they will have very close performance.
VSP ETF: Morningstar rating
Rating: 3 out of 5.
VSP Dividend history
| Type | Ex-div Date | Payment Date | Cash Distrib per Unit |
|---|---|---|---|
| Income | 29 Jun 2022 | 08 Jul 2022 | $0.207999 |
| Income | 24 Mar 2022 | 01 Apr 2022 | $0.176667 |
| Income | 30 Dec 2021 | 10 Jan 2022 | $0.247884 |
| Capital Gains (ETFs) | 30 Dec 2021 | 10 Jan 2022 | $0.000000 |
| Income | 29 Sep 2021 | 08 Oct 2021 | $0.201278 |
VSP ETF Holdings
| Holding Name | % of Market Value |
|---|---|
| Apple Inc. | 6.63% |
| Microsoft Corp. | 6.06% |
| Amazon.com Inc. | 2.93% |
| Alphabet Inc. Class A | 2.06% |
| Alphabet Inc. Class C | 1.90% |
| Tesla Inc. | 1.78% |
| Berkshire Hathaway Inc. Class B | 1.55% |
| UnitedHealth Group Inc. | 1.52% |
| Johnson & Johnson | 1.47% |
| NVIDIA Corp. | 1.19% |
please consult issuers website for up-to-date data
VSP ETF Sector allocation
| Sector | Fund |
|---|---|
| Information Technology | 26.8% |
| Health Care | 15.2% |
| Financials | 10.8% |
| Consumer Discretionary | 10.5% |
| Communication Services | 8.9% |
| Industrials | 7.8% |
| Consumer Staples | 7.0% |
| Energy | 4.4% |
| Utilities | 3.1% |
| Real Estate | 2.9% |
| Materials | 2.6% |
| Total | 100.0% |
please consult issuers website for up-to-date data
