VEQT vs VFV: Global Diversification vs the S&P 500

The Tempting Comparison

If you bought VFV in 2019 instead of VEQT, you'd have more money today. That's a fact. VFV has outperformed VEQT over the last several years, and if you hang out on Canadian investing forums, someone will point this out approximately every 45 minutes.

But it's the wrong fact to build a 30-year strategy on. Here's why.

What You're Actually Comparing

VFV and VEQT are both Vanguard Canada ETFs, but they solve very different problems.

VFV tracks the S&P 500 — roughly 500 of the largest US companies. It's concentrated in a single country and skews heavily toward mega-cap tech. Apple, Microsoft, NVIDIA, Amazon, and Alphabet alone make up a significant chunk of the fund.

VEQT holds approximately 13,700 stocks across 50+ countries. It includes the S&P 500 companies (US is ~40% of VEQT), but also Canadian stocks, European stocks, Japanese stocks, emerging markets, and everything in between.

VFV is not "the market." It's one large, important slice of the global market. Buying VFV and calling yourself diversified is like eating only chicken and calling it a balanced diet.

Why VFV Has Won Recently

US mega-cap tech has dominated global returns for roughly a decade. Apple, Microsoft, NVIDIA, Amazon, Alphabet, Meta, and Tesla have delivered extraordinary returns, and these companies make up a huge portion of the S&P 500.

VEQT holds ~40% US, so it participates in these gains — just not exclusively. The gap between VFV and VEQT over recent years is driven almost entirely by VEQT's Canadian (~30%) and international (~30%) allocations lagging US returns.

This is a real performance gap, and we won't pretend it doesn't exist. But understanding why it exists is essential to deciding whether it will continue.

Why Past US Outperformance Is a Terrible Reason to Choose VFV

This is the core of the decision. Five reasons:

1. Recency bias is the most expensive mistake in investing

In the 2000s, international and emerging markets significantly outperformed the US. From 2000 to 2010 — an entire decade — the S&P 500 delivered essentially zero total return while international developed markets returned roughly 30% and emerging markets returned over 150%.

Someone who looked at 2000-2010 returns and went all-international would have missed the subsequent US rally. The same logic in reverse is what drives the VFV argument today. "This market has been winning, so it will keep winning" is the most common — and most expensive — mistake investors make.

2. US valuations are stretched

US stocks trade at significantly higher price-to-earnings ratios than the rest of the world. Higher valuations historically predict lower future returns over the following decade. You're paying a premium for US stocks precisely because everyone else has been piling into them.

Buying the most expensive market because it's been going up is performance chasing with extra steps.

3. Concentration risk is real

VFV gives you ~500 companies in one country. If the US underperforms for a prolonged period — as it did from 2000 to 2010, or as Japan did from 1990 onward — your entire portfolio feels it. There's no buffer, no offset, no diversification to soften the blow.

4. You can't predict which market wins next

The entire premise of passive investing is that predicting future winners is unreliable. Professional fund managers with armies of analysts can't do it consistently. You're not going to do it by looking at a 5-year return chart.

VEQT owns everything. If the US keeps winning, VEQT wins (40% US). If international markets start outperforming, VEQT wins. If emerging markets have a decade like the 2000s, VEQT wins. VFV only wins in one scenario.

5. VEQT already holds the S&P 500

About 40% of VEQT is US stocks. You're not missing out on US growth — you're just not putting all your eggs in that one basket. If the S&P 500 returns 15% in a given year, VEQT captures roughly 6% of that through its US allocation alone, plus whatever Canada, international, and emerging markets contribute.

Who Should Buy VFV Instead

We're not going to pretend VFV is never the right choice. It can make sense for:

• Investors who hold VEQT as their core and want a US tilt. Holding VEQT + a small VFV satellite position is a deliberate, conscious choice to increase US exposure while maintaining global diversification as the foundation. That's reasonable.
• Investors in taxable accounts where the MER difference matters. VFV's 0.09% MER vs VEQT's ~0.20% saves about $110/year on a $100,000 portfolio. It's modest, but in a taxable account where every basis point is taxed, it adds up.
• Investors who consciously accept the concentration risk. If you understand that you're betting on US outperformance continuing, and you're comfortable with that bet, that's your call. Just don't confuse it with passive investing.

Who Should Buy VEQT

• Anyone who wants a plan rather than a prediction. VEQT doesn't require you to be right about which country or region will outperform.
• Anyone with a 10+ year horizon. Over long periods, global diversification has protected investors from the inevitable stretches when any single country underperforms.
• Anyone who wants to buy one thing and be done. VEQT is a complete portfolio in one ticker. VFV requires you to pair it with other ETFs if you want any diversification beyond the US.
• Anyone uncomfortable putting everything in one country. This is most people, once they think about it carefully.

The Bottom Line

VFV is a bet. VEQT is a plan. One of these approaches has decades of evidence behind it. The other has recent returns.

If someone shows you a 5-year chart where VFV beats VEQT and says "see, you should just buy VFV," ask them to show you the chart from 2000-2010. Then ask them to predict which chart the next decade will look like. They can't. Nobody can. That's why VEQT exists.

For a live side-by-side comparison with current performance data, see VEQT vs VFV on our Compare page.

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This article is for informational purposes only and is not financial advice. Consider your personal situation and consult a financial advisor if needed.