US stocks have been one of the best-performing asset classes within the global investment landscape over the past several decades.
While the incredibly popular S&P 500 Index only tracks the 500 largest US stocks, the total US stock market is actually much more diverse than this (it includes small and mid-sized companies as well).
To gain a sense of the type of returns that US stocks typically return, the S&P 500 Index has offered long-term investors an annualized average return of 11.88% over roughly the past 64 years.
In this VUN vs XUU comparison, I will outline which US total stock market ETF comes out on top across the following key areas:
- Fees
- Performance
- Yield
- Length of track record and fund size
- Risk
I will outline VUN vs XUU below and go over how the two low-cost ETFs compete in each area.
How a Canadian ETF Tracking A US Total Market Index Works
A Canadian ETF that tracks the broad US stock market will of course be investing in US stocks. Since you cannot purchase US stocks with Canadian dollars, Canadians will have to accept fluctuations between the Canadian and the US dollar. This is unless the ETF is currency hedged.
Currency movements can lead to either gains or losses throughout an investment time period.
In this particular case, it is important to see if the US dollar has appreciated or depreciated against the Canadian dollar since you have started investing.
If you are holding a US dollar-denominated investment and the US dollar has appreciated, you will have more Canadian dollars once you make the conversion.
Both the VUN and the XUU ETFs are currency unhedged, meaning that you are taking on the additional gains or losses that come from the appreciation or depreciation of the US dollar.
VUN vs XUU: Fees
XUU and VUN are both low-cost ETF choices for broad US stock market exposure.
VUN is offered at a management fee of 0.15% and a management expense ratio of 0.16%.
XUU is offered at a management fee of 0.07% and a management expense ratio of 0.08%.
The difference between the two is fairly massive (on a percentage basis), although both are inexpensive relative to most mutual funds and ETFs.
Fees verdict – In terms of fees, XUU is the clear winner, being offered at a management expense ratio that is half of VUN’s.
VUN vs XUU: Performance
Both VUN and XUU cover the broad US stock market, although there are some differences in their performance.
Both ETFs come with medium-length performance track records, although VUN has a track record that is longer by just under two years. Common timeframes that both ETFs share over which performance can be compared include five years, three years, and one year.
XUU has currently managed to outperform VUN over all three of the above timeframes by a fairly modest amount. VUN currently has a higher since-inception return.
Performance verdict – Despite VUN having a higher since-inception return, the three timeframes that are shared by both ETFs are more important to consider when looking at performance, making XUU the winner in this category.
VUN vs XUU: Yield
Since both VUN and XUU cover the broad US stock market, both ETFs should offer similar yields to investors. This does turn out to be the case.
The VUN and XUU ETFs both offer quarterly distributions.
The VUN ETF currently pays a 12-month yield of 1.14% while the XUU ETF pays a 12-month yield of 1.24%.
Both ETFs pay a fairly low yield to investors, which will make them unattractive as investment options for income-oriented investors.
Yield verdict – Although both ETFs offer a fairly low yield to investors, XUU pays a marginally higher yield, making it the winner in this category.
VUN vs XUU: Length of Track Record and Fund Size
How far out a fund’s inception date is as well as how many millions (or billions) of dollars it has under management are important elements to keep in mind as a fund investor. It is ideal for a fund to have a long performance track record and to try to have at least $50 million in assets under management.
VUN has an inception date of August 2, 2013. XUU has an inception date of February 10, 2015. The VUN ETF comes with a longer performance track record.
Both XUU and VUN are very large Canadian ETFs with over one billion in assets under management. VUN currently has over $5.5 billion in assets under management while XUU has just over $2 billion in assets under management.
The amount of assets that a fund has under management is more of a potential problem for newer ETFs, especially if they have trouble attracting capital.
Funds that remain very small can run into profitability problems over time and may potentially be shut down early. As massive ETFs, this is not a risk factor for either VUN or XUU.
Length of track record and fund size verdict – with a longer performance track record and a larger asset base, VUN is the winner in this category.
VUN vs XUU: Risk
Risk, or how volatile a fund is over time, is another critical aspect to consider before making an investment decision.
Both VUN and XUU are outlined as having a medium risk rating and investing entirely in small-cap, mid-cap, and large-cap stocks.
Since both ETFs invest in the same broad basket of US stocks, the risk category is fairly uneventful.
Risk verdict – The VUN and XUU ETFs both have a medium risk rating, making it a tie between the two funds in this category.
Frequently Asked Questions
VUN vs VTI?
VTI is another low-cost ETF offered by Vanguard. VTI also tracks the broad US stock market, similar to VUN, but is a US-listed ETF. This means that it will have to be purchased in US dollars.
Since VTI is US-listed, there will not be any currency impacts within the fund. The impact of Canadian dollar and US dollar fluctuations will show up in your trading account when looking at Canadian dollar-denominated returns.
Our Final Verdict
Although the VUN and XUU ETFs are both low-cost Canadian ETFs that invest in the broad US stock market (without any currency hedging), there is a clear winner between the two. Since iShares’ XUU ETF is offered at half of the MER of VUN, it is the clear-cut winner when it comes to investing in the broad US stock market.
Keep in mind that despite the differences between VUN and XUU, they are both excellent choices to consider relative to most other ETFs and mutual funds, which are typically offered at fairly high fees.
If you are new to investing and building portfolios, make sure to read my guide on investing for beginners, which can help you to avoid common pitfalls early on.
