Investing, Investing Basics

VFV & VOO: What’s the Difference?

by Modern Money

Summary: Should I buy VFV or VOO?

Confused between VFV and VOO? Here’s a clear breakdown of their differences. VFV is the Canadian equivalent of the popular Vanguard S&P 500 ETF (VOO), offered by Vanguard U.S., with both VFV and VOO tracking the S&P 500. An important difference between the two is that by investing in VFV, your investment may be subject to a 15% foreign withholding tax on the dividends as VFV is Canadian domiciled, meaning that it trades in CAD despite owning all US holdings.

What are Index Funds?

An index fund is a type of mutual fund or exchange traded fund (ETF) that aims to mirror a particular market. Index funds contain a tiny piece of all the companies included in a particular market index (e.g., S&P 500 or the Dow Jones Industrial Average).

Index funds offer a great vehicle to diversify your holdings, as it spreads out your money across many companies in an index. Instead of placing all your eggs in one basket (one security), you spread them out across multiple baskets.

What is Vanguard?

Vanguard was founded by John Bogle in 1975 and that same year Vanguard launched the first index fund, which tracked the S&P 500. Today, Vanguard is the largest issuer of mutual funds in the world and the second-largest issuer of ETFs as well.

Comparing VFV & VOO – The Stats

Management Expense Ratio (MER)0.09%0.03%
Dividend Yield1.09%1.34%
Withholding Tax (for Canadians)15%0% (in your RRSP)
10 Year Performance290.40%229.27%

Currency Hedging – VFV vs. VOO

When you purchase VFV, which holds the U.S. ETF VOO, the CAD-USD exchange rate can impact the Canadian ETF’s value, beyond the underlying stocks’ price movement.

Why? Not all ETFs hedge against this currency difference. Hence, if the U.S. dollar strengthens, the ETF gains value, and vice versa. Fluctuations in the Canadian dollar can alter returns over time.

Should I Buy VFV or VOO?

Well, it depends!

If you prefer a lower MER and higher dividend yield, VOO may be the better option, but you will need to bear the currency conversion cost. Or, if you’re familiar with Norbert’s Gambit, you can convert funds without the currency conversion fees (click here to learn about Norbert’s Gambit). As a reminder, you will need to hold VOO in your RRSP to avoid the 15% withholding tax.

If you prefer straightforward and consistent investing, VFV might be the more accessible choice for the majority of investors.

To review the full details of VFV and VOO from Vanguard, click on either one.

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