There are several ETFs trading on the TSX that track the S&P 500, perhaps the world’s most prominent index. Which one should investors own?
The iShares S&P 500 Index Fund CAD Hedged (TSX:XSP) takes currency out of the picture, hedging results back into Canadian dollars.
The iShares ETF holds only one stock position, which is an investment in its U.S.-traded S&P 500 ETF. It also holds derivative positions to effectively hedge the currency. It has a management expense ratio of just 0.11% and assets of more than $3.5 billion.
Vanguard offers two S&P 500 ETFs for Canadian investors. One is Canadian dollar hedged, while the other isn’t.
Over the last year, the Vanguard SP 500 Index ETF (unhedged) (TSX:VFV) has returned 5.2%. The Vanguard SP 500 Index ETF (hedged) (TSX:VSP) hasn’t done quite as well, returning 3.3%. And bringing up the rear is the iShares ETF, which has only returned 2.7%. All of these results are excluding dividends.
Vanguard also beats iShares on fees, although it isn’t by much. Both of Vanguard’s Canadian S&P 500 ETFs charge a management expense ratio of 0.08%. Like the iShares ETF, Vanguard also keeps things simple by investing in its U.S.-based S&P 500 ETF.
Ultimately, making the choice in currency hedging versus taking currency risk is up to each individual investor. Over time, the impact shouldn’t be too much. But in the short term, the Canadian Dollar moving in the wrong direction can really make a difference.
