Vanguard S&P 500 Index ETF (VFV) Review
After covering some popular exchange-traded funds (ETFs) offered by BMO Global Asset Management, now we are taking a look at another giant fund manager in Canada, Vanguard Investments Canada Inc. or simply, Vanguard. The US branch of Vanguard boasts about 80 ETFs and the Canadian arm manages about 37 ETFs. In this article, we will focus on Vanguard S&P 500 Index ETF, ticker symbol; VFV, listed in the Toronto Stock Exchange (TSX).
Vanguard came into Canada in 2011 and has been a leader in keeping investment costs lower than its peers. Since then, it has also grown to be one of the key players in the investment front in Canada with a sizable collection of ETFs and mutual funds. Vanguard Group is one of the largest investment firms in the world with over $9.1 trillion assets under management and over 30 million clients worldwide.
Much like any fund management company, Vanguard, too, offers its own S&P 500 Index investment opportunity. This is called, well, Vanguard S&P 500 Index ETF with the ticker symbol VFV for Canadian investors. The objective of this ETF is to track, to the extent possible, the performance of Standard & Poor’s 500 largest US-listed companies.
The TLDR of S&P 500 Index: a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States. It is one of the most followed and replicated indices in the world. There are several criteria that a company must pass to be eligible to be entered into this index. Unsurprisingly, S&P 500 Index has given sustainable returns over the years. Since its inception in 1970, the index has given an average annual return of around 10%.
| Quick Facts | VFV.TO |
|---|---|
| Fund inception date | November 02, 2012 |
| Net Assets (Oct 31, 2021) | $5.9 billion |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 1.04% |
| Distribution frequency | Quarterly |
| Management expense ratio | 0.08% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
For Canadians, investing in the US stock market comes with a few complications. From holding USD in a Canadian account to currency translation fees by brokers and even receiving distributions getting charged with withholding taxes. So, it is much easier to invest in an index fund incorporated in Canada that tracks a US index. This is exactly what VFV does.
Vanguard measures the risk of VFV in terms of several criteria. The fund has an R-Squared of 1, which means that it has been able to replicate the performance of its underlying index almost perfectly. Another similar measure is Beta, which explains the same in relation to the share price of the ETF. Vanguard also measures the ALPHA of the fund to be -0.01, which is as good as it gets. A positive alpha means the fund has outperformed its underlying index. This is almost an impossibility when tracking a certain index such as S&P 500. Overall, Vanguard has done a very commendable job in replicating the S&P 500 Index within VFV ETF.
Vanguard S&P 500 Index ETF (VFV) Holdings
VFV will hold whatever the companies and stocks held by its underlying index; the S&P 500 Index. Although the name suggests that it should hold only 500 companies, it actually holds 511 stocks.
Below are the top 20 holdings and their weightage within VFV ETF as of October 31, 2021.
| Holding Name | Weightage |
|---|---|
| Microsoft Corp. | 6.32% |
| Apple Inc. | 5.97% |
| Amazon.com Inc. | 3.72% |
| Tesla Inc. | 2.29% |
| Alphabet Inc. Class A | 2.26% |
| Alphabet Inc. Class C | 2.12% |
| Facebook Inc. Class A | 1.95% |
| NVIDIA Corp. | 1.61% |
| Berkshire Hathaway Inc. Class B | 1.35% |
| JPMorgan Chase & Co. | 1.28% |
| UnitedHealth Group Inc. | 1.10% |
| Johnson & Johnson | 1.08% |
| Home Depot Inc. | 1.00% |
| Visa Inc. Class A | 0.90% |
| Bank of America Corp. | 0.89% |
| Procter & Gamble Co. | 0.88% |
| Adobe Inc. | 0.78% |
| Walt Disney Co. | 0.78% |
| Netflix Inc. | 0.76% |
| Mastercard Inc. Class A | 0.74% |
As is the recent trend in the S&P 500 Index, VFV ETF is weighted more towards the Information Technology sector with 27.9% asset allocation. This is due to the bull run in the IT sector in the last decade led by companies such as Apple, Microsoft, Google, Facebook, and so on.
The second-highest asset allocation is towards the Healthcare sector with 13%, closely followed by the Consumer Discretionary sector with 12.8% allocation.
82% of the asset allocation is in large-cap companies, which is an accurate depiction of the ‘largest 500 companies in the USA.’
Vanguard S&P 500 Index ETF (VFV) Performance
The VFV fund is closing in on its 10-year anniversary. While this is an okay time period to evaluate its performance, this is also right in the middle of the tech boom that we saw in the last decade. So, the performance of this fund will be slightly an exaggeration of the all-time performance of the S&P 500 Index. Regardless, it does not make it any less true.
VFV ETF has seen 379.99% returns since its inception in 2012 up until Nov 30, 2021. This means that an initial investment of $10,000 then would have turned into $37,999 by 2021.
This graph is the dream of any long-term value investor!
IS VFV ETF for You?
For any long-term growth investor, the S&P 500 Index is a must-have in their portfolio. It represents the biggest and the strongest companies in the United States, and that is something. If you have a rather long time horizon to invest, the S&P 500 Index is a sure bet for steady and recurring gains. VFV is nothing but a mirror of this index and one of the ideal candidates for Canadian investors to get into the US market.
Check out the latest information about the fund on Vanguard.
Disclosure: Any information given in this article is not to be construed as investment advice. You must do your own research before investing any money in the stock market. All investments carry inherent risks even with the possibility of losing all your money.
