Choosing the right index fund is the foundation of building long-term wealth. For Canadian investors seeking exposure to the powerhouse US stock market, Vanguard offers two premier options: the Vanguard U.S. Total Market Index ETF (VUN) and the Vanguard S&P 500 Index ETF (VFV).
While both exchange-traded funds (ETFs) trade in Canadian dollars (CAD) on the Toronto Stock Exchange (TSX), they track fundamentally different indexes. This comprehensive guide breaks down the performance, fees, diversification, and tax implications of VUN vs VFV to help you determine which belongs in your portfolio.
The Quick Verdict: VUN vs VFV at a Glance
If you want immediate clarity, the choice comes down to one question: Do you want the entire US stock market, or just the 500 largest companies?
- Choose VUN if you prioritize maximum diversification, including exposure to mid-cap and small-cap growth stocks.
- Choose VFV if you want a lower management fee and prefer to stick with established, blue-chip mega-cap leaders.
Core Profiles: Understanding the Underlying Indexes
Core Profiles: Understanding What Each ETF Actually Owns
Before comparing performance, it’s important to understand the indexes these ETFs track behind the scenes.
| Feature | Vanguard U.S. Total Market Index ETF (VUN) | Vanguard S&P 500 Index ETF (VFV) |
|---|---|---|
| Benchmark Index | CRSP US Total Market Index | S&P 500 Index |
| Approximate Holdings | 3,500+ stocks | 500 stocks |
| Market Cap Exposure | Large-, mid-, small-, and micro-cap companies | Primarily large- and mega-cap companies |
| Geographic Focus | United States | United States |
| Currency Exposure | CAD (Unhedged) | CAD (Unhedged) |
| Exchange | Toronto Stock Exchange (TSX) | Toronto Stock Exchange (TSX) |
| Primary Objective | Capture the entire U.S. equity market | Track the largest U.S. corporations |
| Small-Cap Exposure | Yes | No |
| Sector Concentration | Slightly more diversified | More concentrated in mega-cap tech |
| Typical Investor Profile | Investors seeking total-market diversification | Investors wanting focused exposure to top U.S. companies |
What is VUN?
VUN seeks to track the CRSP US Total Market Index. This means it buys virtually every publicly traded company in the United States. It wraps the US-listed Vanguard Total Stock Market ETF (VTI) into a Canadian wrapper. When you buy VUN, you own elite tech giants alongside small town banks and emerging biotech firms.
What is VFV?
VFV tracks the world-famous S&P 500 Index. This index represents roughly 500 of the largest, most stable, and most profitable corporations in the United States. It acts as a Canadian wrapper for the US-domiciled Vanguard S&P 500 ETF (VOO). When you buy VFV, you are betting strictly on America’s heavy hitters.
Key Differences Analyzed
1. Diversification and Holdings
Diversification reduces single-stock risk. However, because both funds use market-capitalization weighting, the largest companies dictate the movement of both ETFs.
- VFV Concentration: The top 10 holdings in VFV (such as Apple, Microsoft, Amazon, and Nvidia) make up roughly 30% to 32% of the entire fund.
- VUN Concentration: The top 10 holdings in VUN are identical to VFV. However, because VUN holds an additional 3,000+ small and mid-cap stocks, these top 10 companies make up slightly less of the total fund (around 26% to 28%).
The Takeaway: While VUN is technically 7 times more diversified by stock count, its day-to-day performance is still heavily driven by the same mega-cap tech stocks that dominate VFV.
Composition The VUN ETF aims to track the performance of the CRSP US Total Market Index, which includes approximately 3,500 stocks covering the entire US equity market. This means that VUN provides exposure to both large and small US companies across a variety of sectors.
On the other hand, the VFV ETF aims to track the performance of the S&P 500 Index, which includes 500 of the largest US companies, such as Apple, Microsoft, and Amazon. Therefore, VFV is heavily weighted towards large-cap companies in the US, which can make it more volatile than VUN.
The VUN ETF follows a passive investment strategy, which means it simply aims to replicate the performance of its underlying index. The fund holds a diverse range of US companies and maintains a long-term investment horizon.
The VFV ETF also follows a passive investment strategy, but it invests exclusively in large-cap US companies, making it more focused than VUN. VFV also has a higher concentration of technology stocks compared to VUN, which may be attractive to investors who believe that the tech industry will continue to grow.
2. Fees and MER (Management Expense Ratio)
Fees eat into your compounding returns over time. Minimizing your MER is one of the easiest ways to maximize your lifetime wealth.
- VFV MER: Historically sits at a rock-bottom 0.09%.
- VUN MER: Historically sits at 0.16%.
The Cost Impact: For every $100,000 invested, VFV costs you approximately $90 per year in fees, while VUN costs you $160 per year. While a $70 difference seems small, over a 30-year investing horizon, that compounding cash stays in your pocket if you choose VFV.
3. Historical Performance
Historically, the S&P 500 (VFV) and the Total Market (VUN) perform almost identically.
- When VFV Wins: During market cycles where mega-cap tech and massive enterprises dominate, VFV edges out VUN.
- When VUN Wins: During cycles where small-cap value stocks and mid-cap disruptors rally, VUN takes the lead.
Because large-cap corporations make up over 80% of VUN’s weight anyway, the correlation between these two funds is roughly 99%. Their charts mimic each other closely over long periods.
The Impact of Currency and Tax Drag
Both VUN and VFV are unhedged ETFs. This means they do not attempt to eliminate fluctuations between the Canadian Dollar (CAD) and the US Dollar (USD). If the US dollar strengthens against the Canadian dollar, your returns get a boost. If the Canadian dollar strengthens, it creates a minor drag on your returns.
Foreign Withholding Taxes (FWT)
Because these ETFs hold US assets, they are subject to a 15% US Foreign Withholding Tax on dividends.
- In a TFSA / FHSA: The 15% tax on dividends is deducted automatically before the cash reaches your account. Neither VUN nor VFV can avoid this.
- In an RRSP: Because these are Canadian-listed ETFs holding US asset wrappers, the withholding tax still applies. To completely avoid the FWT in an RRSP, you must convert your CAD to USD (using techniques like Norbert’s Gambit) and buy the US-domiciled versions directly (VOO instead of VFV, or VTI instead of VUN).
Which One Should You Buy?
Buy VFV if:
- You are highly fee-conscious and want the absolute lowest MER.
- You believe large, multinational conglomerates will continue to outperform smaller businesses.
- You already own a separate small-cap or mid-cap fund and want to avoid overlap.
Buy VUN if:
- You want a true “set-it-and-forget-it” portfolio that captures the entire US economy.
- You want exposure to the next massive corporation while it is still a small-cap stock.
- You prefer peace of mind knowing you do not have to guess which business size segment will perform best.
Final Thoughts for Canadian Investors
You cannot make a wrong choice between VUN and VFV. Both are stellar, low-cost vehicles managed by Vanguard, a global leader in index investing.
Do not buy both. Owning both VUN and VFV creates massive overlap, complicates your portfolio tracking, and provides zero added diversification benefits since VFV’s holdings are already fully replicated inside VUN. Pick the one that aligns with your philosophy on small-cap exposure and investment fees, and buy it consistently.