VFV versus VSP: Which S&P 500 ETF is Better for Canadian Investors?

Both of these ETFs track the S&P 500 Index but do so with slight differences.

Tony Dong, MSc, CETF®

Tony turned a series of 2017 marijuana stock losses into a freelance career advocating for ETF investing. He currently holds a Master’s in Risk Management from Columbia University and is a Certified ETF Advisor (CETF®). Tony is the founder of ETF Portfolio Blueprint (etfportfolioblueprint.com) and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE. His analysis has also been featured in publications like Kiplinger, 24/7 Wall St., U.S. News & World Report, TheStreet, and Benzinga. Tony also provides independent content and marketing consulting services to various Canadian and U.S. ETF issuers. His editorial opinions for The Motley Fool remain independent and objective.

Published August 25, 2025 3:45 pm EDT

Canadian investors looking for S&P 500 exposure through Vanguard have two main options: the Vanguard S&P 500 Index ETF (TSX:VFV) and the Vanguard S&P 500 Index ETF (CAD-hedged) (TSX:VSP). Both ETFs are highly popular and have long track records.

The difference is clear in the names: one is hedged to the Canadian dollar, the other is not. But what does that actually mean for your expected returns, and which one should investors pick? Here’s my breakdown.

ETF is short for exchange traded fund, a popular investment choice for Canadians — Source: Getty Images

What’s the same

Both ETFs track the S&P 500 Index, which holds 500 of the largest U.S. companies by market capitalization. They also both work the same way. Each holds units of the underlying U.S.-listed Vanguard S&P 500 ETF, making them “fund of funds” structures.

VFV and VSP both charge a rock-bottom 0.09% management expense ratio, making them among the cheapest ways to get U.S. equity exposure in Canada. For a $10,000 investment, that’s around $9 a year in fees.

Both also lose 15% of dividends to U.S. foreign withholding tax. This can’t be avoided by holding VFV or VSP in a Registered Retirement Savings Plan (RRSP) as both ETFs are Canadian-domiciled, but it’s a small drag.

What’s the difference

The main distinction is in currency exposure. VFV is unhedged, meaning its returns reflect both the performance of the S&P 500 and movements in the U.S. dollar against the Canadian dollar. If the USD appreciates relative to CAD, VFV can outperform the index in Canadian-dollar terms. But if CAD strengthens, VFV can underperform.

VSP uses derivatives called currency forwards to hedge against U.S. dollar fluctuations. This reduces currency-related volatility and shields returns from CAD appreciation, but it also means you won’t benefit if the USD rises. Hedging adds a slight cost, but for some investors, the reduced currency risk is worth it.

The Foolish takeaway

Buy VFV if you believe the U.S. dollar will continue to outperform the Canadian dollar over time. Buy VSP if you think the opposite. If you’re unsure, consider splitting your allocation 50/50 and rebalancing periodically. This way, you can systematically sell high and buy low between the two.

Personally, my preference is VFV. I don’t like the constant drag from currency hedging, and over the long term, foreign exchange fluctuations tend to even out. Short-term swings in CAD/USD are just daily noise, so if VFV’s performance temporarily diverges from the S&P 500 because of currency moves, I don’t panic.