Do you invest in ETFs or Exchange Traded Funds? For most investors, they are the easiest way to get exposure to a large portion of the stock market. They can be cost-effective if they have a low expense ratio, and can even pay you consistent dividends. Even Warren Buffett says that for a majority of people, investing in low-cost index funds is the best way to go. So in this VFV ETF review article, we’ll ask the question: is VFV the only ETF you will ever need?
The Vanguard S&P 500 Index ETF (VFV) tracks the benchmark S&P 500 index. The nice thing about VFV is that Canadians can buy this ETF in Canadian dollars. Since its inception in 1957, the S&P 500 index has provided an average annual return of around 10%. When the facts are laid out like this, there might not be a better money compounder on Earth than the S&P 500.
But is owning the Canadian version of an S&P 500 ETF the same thing? Vanguard is one of the world’s largest ETF providers and has over $8.8 trillion in assets under management. Surely they know a thing or two about what they are doing. In this VFV ETF review article, we will discuss some key facts, the top holdings, the fund fees, the recent performance, and if it deserves a spot in your portfolio.
What is VFV?
First things first in this VFV ETF review: what is VFV? The Vanguard S&P 500 Index ETF (VFV) is a Vanguard Canada ETF that was established in November 2012. It is intended to provide Canadian investors with exposure to the holdings in the S&P 500 at the same weighted allocation as the index itself.
As we mentioned, the best thing about VFV for Canadian investors is that you can purchase this ETF on the Toronto Stock Exchange in Canadian dollars. This means that VFV is eligible for all registered and non-registered accounts in Canada.
Despite the S&P 500 being the global benchmark stock index, Vanguard has given VFV a Medium risk rating. As we all saw what happened in 2022 when the S&P 500 fell by nearly 20%, anything is possible. Previous returns are never indicative of future performance.
Here are some key facts about the VFV ETF as of October 2023:
|Inception Date||November 2, 2012|
|Number of Holdings||507|
|MER (Management Expense Ratio)||0.09%|
|Assets Under Management||CAD $8.89 billion|
|12-Month Trailing Distribution Yield||1.23%|
VFV Management Fees and MER
When looking at ETFs, one of the most important factors is how much the fees are. Luckily for Canadian investors, VFV has very low management fees. What exactly are the management fees and MER for an ETF?
The two are not the same although they are often used interchangeably. The MER includes the management fee, which is why you might see the MER as a higher number. What the MER essentially means is how much the fund manager, in this case, Vanguard, is charging you to own this ETF. For a passively managed index fund like VFV, there is little management needed.
An MER of 0.09% means that for every $10,000 you have invested in VFV, you pay an annual fee of $9.00. Not too shabby at all! This is also an excellent example of why we say low-cost ETFs make a huge difference over the long run.
|VFV Management Fee||0.08%|
|VFV MER (Management Expense Ratio)||0.09%|
VFV Holdings Breakdown
When discussing the holdings of an ETF we typically talk about how much the weighted allocation each stock has in the fund. For an ETF that tracks the S&P 500 index, the holdings are a simple discussion. VFV tracks the S&P 500 down to the same weighted allocation. This means that owning VFV is effectively holding the S&P 500 index in your portfolio.
While the index is called the S&P 500, you might be surprised to see 507 holdings in VFV. Don’t worry, there are still just 500 companies, but some of them issue more than one stock. A classic example of this is Google’s parent company Alphabet which issues both Class A (GOOGL) and Class C (GOOG) shares.
The top names in VFV should come as no surprise to anyone. They are some of the largest companies in the world by market capitalization. Without further ado, here are the top ten holdings in VFV as of October 2023:
|Ticker Symbol||Stock Name||Weighted Allocation|
|GOOGL||Alphabet Inc. Class A||2.13%|
|GOOG||Alphabet Inc. Class C||1.85%|
|META||Meta Platforms Inc||1.72%|
|BRK.B||Berkshire Hathaway Inc. Class B||1.69%|
|XOM||Exxon Mobil Corp.||1.18%|
Here is a comparison of the sector breakdown in the VFV ETF:
|Sector Name||Allocation in VFV ETF|
Of course, 100% of the stocks in VFV are based in the United States of America. VFV also has an 79.10% allocation to large-cap stocks.
The Pros and Cons of Holding VFV
The S&P 500 has been a consistent generator of a near 10% average annual return since 1957. Sure, past returns are not indicative of future performance but after a while, the law of averages also needs to be taken into account.
Owning an ETF with a low MER like VFV will allow you to keep more of your gains in the future. This is especially true if you hold it in an account like a Tax-Free Savings Account or TFSA. It can also be advantageous to hold VFV in an RRSP as your capital gains taxes are deferred until you are 67.
The obvious exposure that VFV gives you is also a major benefit. Imagine buying shares of all 507 stocks that the VFV holds. Your money definitely would not get very far. However, buying shares in the VFV ETF adds immediate diversification to your portfolio.
The performance of the S&P 500 index is both predictable and wildly unpredictable. It can provide an average annual return of 10% but lose nearly 20% as it did in 2022.
The dividend yield is not as high as other ETFs. With that being said, you are owning VFV for consistent growth and not for a dividend income stream.
VFV ETF Review Conclusion: Is VFV ETF a Good Investment?
Many will argue that there are few investments more steady than the S&P 500 index. Even in times of market volatility, many investors swear by investing in the index. Remember, we can count Warren Buffett as one of those as he owns a couple of index ETFs in his own portfolio.
If you are looking to simply park your money somewhere and let time and the market do the heavy lifting then VFV is certainly a place you can look. VFV is perfect for the investor who wants to have exposure to the market and never makes a trade. You can be as passive as an investor as you’d like by owning VFV.
Remember, this is never meant to be financial advice. Do your own research and make sure that investing in VFV matches your own risk tolerance, investment horizon, and investing goals. Use this guide as a starting point but never as a reason to blindly buy the VFV ETF!