Vanguard VSP ETF Review 2022: Currency Hedge The S&P 500

The TSX boasts several high-quality stocks that have provided significant long-term returns.

However, it is always a wise idea to diversify your investment portfolio by exploring equity securities in foreign markets with countries that have strong economies.

Exchange-Traded Funds (ETFs) tracking the performance of broad market indices that comprise securities from international stock markets offer you a hands-free and convenient method to gain that exposure.

If you’re interested in investing in a basket of US stocks in the form of a single investment product, my Vanguard VSP ETF review might help you determine a fund that you could consider for this purpose.

Our Verdict
Vanguard VSP ETF Review
9.5/10Our Score

Vanguard VSP ETF

Invest In The Top 500 US Stocks

Invest in the Vanguard VSP ETF to gain exposure to the performance of a broad US equity index that focuses on 500 of the biggest stocks listed in the US.

Pros
  • Diversifies away from the Canadian stock market
  • Offers exposure to the top 500 US-listed stocks
  • Currency-hedged exposure to U.S stocks for Canadians
  • Low-cost exposure to a group of US equity index stocks
Cons
  • Allocates a majority of its assets to one sector
  • Hedging not always the best strategy

What Is Vanguard VSP ETF?

Vanguard S&P 500 Index ETF (VSP) is a low-cost fund that offers you exposure to a broad group of diversified securities trading in the US stock market.

The fund was incepted on November 2, 2012, and boasts Assets Under Management (AUM) of $2.08 billion as of February 4, 2022.

The fund has been designed to provide you with investment returns by replicating the performance of a broad US equity index that comprises 500 of the largest market capitalization stocks listed in US stock markets.

VSP ETF is an all-equity fund. It means that it allocates its entire AUM to US-listed equity securities and does not offer you exposure to the performance of any fixed-income assets, making it a slightly higher-risk investment product to consider.

What Does Vanguard VSP ETF Invest In?

What Does Vanguard VSP ETF Invest In?

Vanguard VSP ETF is an equity-focused fund with an AUM of $2.08 billion. It means that the ETF invests its entire funds in publicly-traded and US-listed equity securities.

VSP ETF invests in and holds securities to replicate the constituent securities of the S&P 500 Index. The fund’s benchmark index focuses on the top 500 large-cap stocks trading in US stock markets.

VSP ETF does not invest in any securities from Canadian stock markets or any international markets besides the US.

It does offer you broadly diversified exposure to equity securities from different sectors of the US economy. The underlying fund selects securities based on their market capitalizations.

As such, it allocates a higher weighting of its asset allocation to US tech sector stocks.

VSP ETF does not allocate any of its funds to fixed-income securities, like bonds and GICs.

Without exposure to any fixed-income assets, it entails a slightly higher degree of capital risk because the fund’s performance relies entirely on how well its constituent equity securities are doing on the stock market.

What Is The Difference Between VFV And VSP?

What Is The Difference Between VFV And VSP?

Vanguard VFV and Vanguard VSP are essentially the same funds because both ETFs provide you with exposure to the same stocks trading on the US stock market.

However, the only difference between the two is that VSP ETF uses currency hedging for the US dollar exposure of the securities back to the Canadian dollar.

The fund uses currency hedging to mitigate any volatility caused by currency exchange rates.

Is VSP Hedged?

Yes, indeed. Vanguard VSP ETF is a currency-hedged version of Vanguard VFV ETF.

The fund uses derivative instruments to hedge the US dollar exposure of the constituent securities held by the fund back to the Canadian dollar to reduce currency volatility risks.

Vanguard VSP ETF Sector Weighting

This section of my Vanguard VSP ETF review will discuss how the fund allocates its assets across different sectors in the US equity security markets to align its holdings with its underlying index.

VSP ETF Sector

VSP ETF allocates 29.2% of its funds to US stocks in the IT industry. The healthcare sector accounts for 13.3% of its asset allocation, and the consumer discretionary sector accounts for 12.6% of its asset allocation.

VSP ETF heavily focuses on the IT industry. A greater focus on one sector could entail a degree of capital risk if the industry goes through a downturn, as the fund’s past performance already shows.

Vanguard VSP ETF Top Holdings

This section of my Vanguard VSP ETF review will discuss the top ten holdings for the fund. Knowing how the fund allocates its AUM is a good way to determine whether it aligns with your investment goals.

VSP ETF Top Holdings

Vanguard VSP ETF provides you with investment returns by replicating the performance of the S&P 500 Index, a broad US equity index that comprises the top 500 publicly traded and US-listed equity securities by market capitalization.

The all-equity fund’s top holding is Apple Inc., accounting for 6.67% of its asset allocation.

Microsoft Corp. is its second-largest holding, accounting for 6.08% of its asset allocation. Amazon.com Inc. is its third-largest holding, with 3.5% of the fund’s asset allocation.

Vanguard VSP ETF MER And Fees

Vanguard VSP ETF MER And Fees

Vanguard VSP ETF is a low-cost fund that uses a passive investment strategy.

The fund seeks to replicate the performance of the underlying index rather than trying to beat it, and that minimizes its management expenses.

However, the use of derivative instruments to hedge the US dollar exposure of its constituent securities back to the Canadian dollar adds to its cost.

The fund comes with a management fee of 0.08% and a Management Expense Ratio (MER) of 0.09%.

Vanguard VSP ETF Performance And Returns

This section of my Vanguard VSP ETF review will cover the past performance and returns for the fund to help you determine how well the fund has been doing since its inception on November 2, 2012.

With a decade of past performance to review, you can get a pretty clear picture of what you can expect by investing in VSP ETF.

VSP ETF Top Performance

The chart above shows you the growth of a hypothetical $10,000 invested in VSP ETF since it began trading on the TSX. The value of $10,000 invested in November 2012 would be worth $34,881 at writing.

There was a dip in the fund’s performance in 2020 and another one towards the end of 2021 that has extended to 2022.

Both declines are a result of a broader sell-off in the US equity market and highlight the capital risk that comes with investing in a fund that only invests in stocks without exposure to fixed-income assets.

VSP ETF fixed-income assets

Vanguard VSP ETF’s recent-most performance shows a 5.36% decline due to the sell-off in the US stock market, particularly in tech sector stocks.

The fund’s one-year returns show a 22.39% upside despite the recent decline. Its five-year returns are also at a strong 15.08%.

Remember that past performance does not predict future returns. It only gives you an idea of how well the fund has performed over the years to inform your investment decision on what you can expect.

Vanguard VSP ETF Dividend Yield

Vanguard VSP ETF Dividend Yield

As of February 04, 2022, Vanguard VUN ETF’s dividend yield is as follows:

  • 12-month trailing yield: 1.07%
  • Distribution frequency: Quarterly

The fund is designed to provide you with investment returns based on the performance of its constituent securities.

Additionally, Vanguard VSP ETF provides you with quarterly dividend payouts that have a trailing 12-month dividend yield of 1.07%.

Vanguard VSP ETF Alternatives

Vanguard VSP ETF Alternatives

This section of my Vanguard VSP ETF review will discuss a few funds that you could consider as alternatives to investing in VSP ETF.

Vanguard VSP ETF Vs. Vanguard VFV ETF

Vanguard VFV ETF is the most obvious choice to compare VSP ETF to if you’re considering alternatives to the fund.

Vanguard VFV ETF and VSP ETF are twin funds, with the only difference between them being the currency hedging strategy used by VSP ETF.

Vanguard VSP ETF comes at a slightly higher cost with an MER of 0.09% compared to VFV ETF’s 0.08% MER.

You could consider VFV ETF a better investment if you do not mind investing in the S&P 500 without currency hedging.

Vanguard VSP ETF Vs. iShares IVV ETF

iShares IVV ETF is another fund that tracks the S&P 500 index like VSP ETF. However, the fund does not hedge the US dollar exposure of its constituent securities back to the Canadian dollar.

\iShares IVV ETF could be seen as a better alternative to Vanguard VSP ETF because it comes at a very low cost compared to VSP ETF.

IVV ETF has an expense ratio of just 0.03% compared to VSP ETF’s 0.09% – effectively a third of the cost.

Vanguard VSP ETF Vs. Vanguard VUN ETF

Vanguard VUN ETF is another fund that lets you invest in a broad US equity index.

However, VUN ETF tracks the US Total Market Index. It means that the fund invests in the entire US stock market, including small- and mid-cap stocks.

VSP ETF focuses on the top 500 large-cap stocks in the US, offering you a narrower exposure to high-quality stocks. Vanguard VUN ETF comes with an MER of 0.16%, making it more expensive to own than VSP ETF.

How To Buy Vanguard VSP ETF In Canada

The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:

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Conclusion – Is VSP A Good ETF?

It is never a bad idea to introduce some diversification to your investment portfolio if you’re concerned about the performance of equity securities listed in the domestic stock market.

Allocating your investment capital to the right internationally diversified stocks can help you realize greater wealth growth and offset any losses from investments in Canadian stocks during domestic market downturns.

Vanguard VSP ETF gives you the opportunity to invest in a basket of the top 500 large-cap stocks listed in the US.

Investing in an all-equity ETF also comes with its risks during volatile market environments, as seen in the fund’s performance during broad sell-offs.

Vanguard VSP ETF is just one of the funds that track the performance of large-cap US stocks.

Check out my breakdown of the best S&P 500 ETFs in Canada to explore more funds you can consider for this purpose.

Check out my Vanguard VXC ETF review if you want to invest in an internationally diversified portfolio of stocks.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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