VUN: The Vanguard U.S. Total Market Index ETF

What VUN holds

VUN is a passive index ETF from Vanguard that tracks the total U.S. equity market. Rather than the 500 largest companies, it aims to hold essentially the whole investable U.S. market: large, mid, and small caps together.

That makes it broader than an S&P 500 fund. It captures thousands of companies across every sector, weighted by size, so the largest technology and consumer names still dominate but you also own the mid- and small-cap tail.

Structurally, VUN is a Canadian-listed 'wrapper' that holds a large U.S.-listed Vanguard total-market fund. For you as the investor, it trades like any TSX-listed ETF in Canadian dollars. Vanguard charges a low management fee for VUN.

Total market vs S&P 500

The main difference between VUN and an S&P 500 fund like ZSP is breadth. The S&P 500 holds 500 large companies; VUN holds the total market including mid and small caps.

• VUN: total U.S. market, thousands of holdings, includes small caps.
• S&P 500 funds (ZSP, XUS): 500 large companies only.

Because large companies drive most of the market's value, VUN and an S&P 500 fund tend to perform similarly. VUN gives a bit more diversification into smaller companies; the choice between them is largely preference.

Currency: VUN is unhedged

VUN trades in Canadian dollars, but its holdings are U.S. companies valued in U.S. dollars. VUN is not currency-hedged, so your return depends on both the U.S. market and the CAD/USD exchange rate.

If the U.S. dollar strengthens against the loonie, that helps your CAD return; if the loonie strengthens, it works against you. Many long-term investors accept this rather than pay for hedging.

Vanguard offers a hedged version (VUS) for investors who want to remove the currency swing. Choosing hedged or unhedged is a personal decision, not a right-or-wrong one.

Tax and account fit for Canadians

In a TFSA, U.S. dividends paid inside VUN face a 15% U.S. withholding tax that cannot be recovered, because the TFSA is not recognized under the Canada-U.S. tax treaty. The U.S. total market is not high-yield, so the drag is modest but real.

In an RRSP, the treaty can exempt U.S. withholding tax on U.S.-listed ETFs held directly, but VUN is a Canadian-listed fund that holds a U.S. fund, so the exemption does not fully pass through. Some investors who want to optimize this hold the U.S.-listed equivalent in an RRSP instead; most accept the small difference for the convenience of a CAD ticker.

In a taxable account, distributions are taxable and U.S. dividends do not qualify for the Canadian dividend tax credit. Confirm your own situation with a tax professional.

Things to check before you buy

• The management fee: VUN is low-cost, but confirm the current MER on Vanguard Canada's page.
• Currency: decide between unhedged (VUN) and hedged (VUS).
• Overlap: do not double up with ZSP, XUU, or another U.S. fund for the same allocation.
• Account type: TFSA, RRSP, FHSA, and taxable each treat U.S. dividends differently.

These are details for using VUN well, not reasons to avoid it.

Frequently asked