Vanguard VUN ETF Review 2022: Buy The Entire U.S Market

Vanguard VUN ETF Review It is a good idea to consider diversifying outside the Canadian stock market if you want to protect your investment capital from the effects of a downturn in the domestic stock market.

The US stock market is one of the strongest worldwide and if you’re looking to invest in a broad equity market index that covers the US equity market, my Vanguard VUN ETF review will discuss a fund that could be ideal for this purpose.

Our Verdict
Vanguard VUN ETF Review
9.5/10Our Score

Vanguard VUN ETF

Invest In Large-Cap US Stocks

Invest in the Vanguard VUN ETF to gain exposure to the performance of a broad US equity index that focuses on primarily large-cap stocks listed in the US.

Pros
  • Low-cost method to invest in a globally diversified portfolio of stocks
  • Diversifies away from the Canadian stock market
  • Uses efficient and cost-effective index sampling techniques
  • Diversifies investment capital across growth and value style US equities
Cons
  • Allocates a majority of its assets to just one sector

What Is Vanguard VUN ETF?

Vanguard US Total Market Index ETF (VUN) is a passively-managed and all-equity ETF that is designed to provide you with investment returns based on the performance of a broad US equity market index that focuses primarily on stocks trading in the US stock market.

Vanguard VUN ETF currently tracks the performance of the CRSP US Total Market Index to align with its investment strategy.

VUN ETF started trading on the TSX on August 30, 2013, and uses a cost-effective index management strategy to minimize costs.

The fund has a massive $5.1 billion in Assets Under Management (AUM) that it allocates entirely to US-listed publicly-traded companies based on their weightings in the underlying index it tracks.

What Does Vanguard VUN ETF Invest In?

What Does Vanguard VUN ETF Invest In?

Vanguard VUN ETF is an all-equity ETF. It means that the fund allocates its entire AUM to investing in publicly-traded companies listed in the US stock markets.

VUN ETF tracks the US Total Market Index and invests and holds securities that comprise its benchmark index to the extent possible.

As of December 31, 2021, Vanguard VUN ETF invests in 4,081 equity securities, offering you a broadly diversified portfolio of US stocks in the form of a single investment product.

The fund entails a slightly high degree of capital risk because of a lack of geographical diversification.

It also allocates around a third of its AUM to US-listed tech stocks, further adding to its risk rating in case the tech sector goes through a downturn in the US.

You could consider it a core holding due to its broadly diversified exposure to the US stock market. Still, its lack of focus on fixed-income assets entails a higher risk rating than a fund that also invests in fixed-income assets.

Vanguard VUN ETF Sector Weighting

This section of my Vanguard VUN ETF review will cover the asset allocation split for the fund across various sectors in the US stock markets to align its holdings with the underlying index that the fund tracks.

vanguard VUN ETF Holdings

Vanguard VUN ETF diversifies across several sectors of the economy but has a more significant focus on the tech sector, allocating almost a third of its assets to tech-related equity securities trading in the US.

VUN ETF also has slightly more significant exposure to the tech sector than its underlying index and a marginally reduced exposure to utilities. However, the fund tracks the benchmark index with considerable accuracy.

Vanguard VUN ETF Top Holdings

This section of my Vanguard VUN ETF review will discuss the top ten holdings for the fund to help you make a more informed investment decision, knowing the companies to which the fund allocates most of its Assets Under Management (AUM).

vanguard VUN ETF Top Holdings

Vanguard VUN ETF tracks a broad US equity index and invests in 4,081 stocks diversified across several sectors of the US economy.

The underlying index uses the market capitalizations of the companies to form the basis of its weighting.

As such, eight of the top ten holdings for VUN ETF belong to the tech industry, and the other two belong to the financial services and healthcare industries.

Apple Inc. is its top holding, accounting for 5.65% of its asset allocation. Microsoft Corp. is its second-largest holding, with 5.16% of its asset allocation. Amazon.com Inc. is its third-largest holding, accounting for 2.93% of its asset allocation.

Vanguard VUN ETF MER And Fees

Vanguard VUN ETF MER And Fees

Vanguard VUN ETF uses a passive strategy that focuses on cost-efficient index management techniques to track the underlying index.

The fund manager’s cost-effective approach is designed to minimize the management fees so you can enjoy more of your investment returns before fees and expenses.

The fund comes with a management fee of 0.15% and a 0.16% Management Expense Ratio (MER), making it a lower-cost alternative to mutual fund products that might track similar indices.

Vanguard VUN ETF Performance And Returns

This section of my Vanguard VUN 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.

VUN ETF has been trading on the TSX since August 30, 2013, and boasts nine years of past performances that you can review to determine what you can expect in the future.

VUN performance and return

The chart above shows the growth of a hypothetical $10,000 invested in VUN ETF since its inception in 2013. A hypothetical $10,000 invested in the fund would be worth over $36,300 at writing.

The chart shows a dip in its performance during the pandemic-fueled sell-off between February and March 2020. It also shows another dip that the fund is going through at writing.

Both these downturns in its performance reflect sell-off periods that impacted the US equity security market, highlighting the risk of investing in all-equity funds like Vanguard VUN ETF.

Vanguard VUN ETF’s recent-most performance shows a 5.60% decline, owing to the broad tech sector sell-off in the US stock market.

Its slightly higher exposure to the tech sector than the benchmark index is also the likely reason why its losses are more pronounced than for the index.

Despite its recent dip, VUN ETF has put up a stellar performance since its inception, particularly in the last three years.

Its three-year performance is up by 18.04% after the recent-most dip, and it is up by 11.42% since its inception, slightly lower than the benchmark index in the same period at 11.60%.

It’s important to remember that past performance is not an accurate indicator of future returns. It merely gives you an idea of how well it has done over the years so that you have a better idea of what you can expect in the future.

Vanguard VUN ETF Dividend Yield

Vanguard VUN ETF Dividend Yield

As of January 28, 2022, Vanguard VUN ETF’s dividend yield is as follows:

  • 12-month trailing yield: 0.97%
  • Distribution frequency: Quarterly

The fund offers you returns through capital gains for the underlying assets in its holdings.

Additionally, Vanguard VUN ETF provides you with quarterly dividend payouts that have a trailing 12-month dividend yield of 0.97%. The dividend yield is not significant, but it comprehensively covers the MER you can expect to pay for investing in the fund.

Vanguard VUN ETF Alternatives

Vanguard VUN ETF Alternatives

This section of my Vanguard VUN ETF review will briefly compare it to a few funds that you could consider as alternatives to investing in VUN ETF.

Vanguard VUN ETF Vs. Vanguard VFV ETF

Vanguard VFV ETF is a fund designed to provide you with investment returns by tracking the performance of the S&P 500 Index – another broad US equity index like the US Total Market Index that VUN ETF tracks.

VFV ETF is a significantly lower-cost fund with an MER of just 0.08% compared to VUN ETF’s 0.16%.

The fund tracks the top 500 US-listed equity securities instead of the entire stock market.

VFV ETF’s top ten holdings are the same as for VUN ETF, but the narrower focus on higher-quality companies gives it an edge in its MER and returns. You could consider VFV ETF a viable alternative to VUN ETF.

Vanguard VUN ETF Vs. Vanguard VSP ETF

Vanguard VSP ETF is a fund that is designed to provide you with investment returns by tracking the performance of the S&P 500 Index like Vanguard VFV.

However, the fund provides you investment returns that are hedged to the Canadian dollar to reduce currency risks.

VSP ETF has the same top ten holdings as Vanguard VUN ETF but has a narrower focus on the top 500 US equity securities.

Despite a slightly higher cost than VFV ETF due to its currency hedging strategy, VSP ETF comes at a lower cost than VUN ETF, with MERs of 0.09% and 0.16%, respectively.

You could consider VSP ETF another viable alternative to VUN ETF if you want currency-hedged exposure to the US stock market.

Vanguard VUN ETF Vs. Horizons HXS ETF

Horizons HXS ETF is another fund that tracks the performance of the S&P 500 Index, providing you with investment returns based on the performance of the top 500 equity securities of publicly-traded companies in the US.

Most of the fund’s top ten holdings are similar to Vanguard VUN ETF, but it offers a narrower exposure to the top US stocks than VUN ETF.

Horizons HXS ETF is also a low-cost fund and boasts a lower MER of 0.10% compared to a 0.16% MER for VUN ETF, making it a viable alternative to consider.

How To Buy Vanguard VUN ETF In Canada

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

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Conclusion

Broadening the exposure of your investment capital into foreign equity markets is a good way to potentially offset any losses you might incur if the domestic market goes through volatility and downturns.

Vanguard VUN ETF offers you the opportunity to invest in a broad US equity index, providing you investment returns based on the performance of stocks in the US stock market.

The fund has a significant focus on tech sector stocks and allocates its assets entirely to equity securities.

It could entail significant capital risk if the US tech sector underperforms or the broader market goes through a sell-off, as reflected in the fund’s performance in the past.

Several other ETFs track the performance of a broad US equity market index. Check out my breakdown of the best S&P 500 ETFs in Canada if you want to explore more funds that offer you exposure to the US stock market.

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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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