XSP vs VSP vs VFV 2026: Should You Hedge the S&P 500 in Canada?
XSP, VSP, and VFV all give Canadians exposure to the same 500 US stocks, but the first two hedge the US dollar back to Canadian dollars and the third one does not. That single design choice has cost or saved Canadian investors tens of thousands of dollars over the last decade. Here is how to pick the right one for 2026 and beyond.
What each ETF actually does
VFV (Vanguard S&P 500 Index ETF) is the unhedged Canadian version. You buy it in Canadian dollars on the TSX, but inside the fund your money is converted to US dollars and buys the S&P 500. Your return is the S&P 500's return plus or minus the change in CAD/USD.
XSP (iShares Core S&P 500 Index ETF, CAD-Hedged) does the same thing but adds a layer of currency forwards that cancel out the CAD/USD move. Your return is close to the S&P 500 in US dollar terms, minus the fund's MER and some hedging friction.
VSP (Vanguard S&P 500 Index ETF, CAD-Hedged) is Vanguard's hedged version. Mechanically identical to XSP, slightly cheaper on paper, slightly smaller fund.
Head-to-head: fees, size, and tracking
| Metric | VFV | XSP | VSP |
|---|---|---|---|
| Issuer | Vanguard | iShares (BlackRock) | Vanguard |
| Index | S&P 500 | S&P 500 CAD-Hedged | S&P 500 CAD-Hedged |
| Management fee | 0.08% | 0.10% | 0.08% |
| MER (all-in) | ~0.09% | ~0.11% | ~0.09% |
| Currency exposure | USD | CAD (hedged) | CAD (hedged) |
| AUM (approx) | $17B+ | $12B+ | $5B+ |
| Distribution yield | ~1.1% | ~1.2% | ~1.2% |
| Distribution frequency | Quarterly | Quarterly | Quarterly |
| Trades in | CAD on TSX | CAD on TSX | CAD on TSX |
| Inception | 2012 | 2001 | 2012 |
The stated MERs are close. The hidden cost is hedging friction: rolling monthly or quarterly currency forwards is not free, and small cash drag plus interest rate differentials between the US and Canada typically add 15 to 40 basis points per year of tracking error on top of the MER. Over long periods that gap is real.
What actually happened: 10-year numbers
Over the ten years ending December 2025, VFV returned roughly 13.5 percent annualized while XSP and VSP returned roughly 12.4 percent and 12.5 percent respectively. That gap, around 100 basis points per year, is almost entirely explained by the US dollar strengthening against the Canadian dollar over the period. The hedged funds gave you a cleaner S&P 500 ride, but they also stripped out the currency tailwind.
The structural case for each choice
Hedged (XSP or VSP)
- Lower year-to-year volatility of returns
- Pure play on the S&P 500 in CAD terms
- Easier mental accounting at tax time
- Costs 20-40 bps per year in hedging friction
- Underperforms when USD strengthens
Unhedged (VFV)
- USD exposure acts as a safe-haven hedge
- No forward contract drag, lower long-run cost
- Higher volatility of annual returns
- You win if CAD weakens, lose if CAD strengthens
- Most Canadian couch-potato portfolios use this
Where currency hedging actually belongs
The textbook finance answer is nuanced. For equities held over long horizons, currency volatility is small relative to equity volatility, so hedging adds cost without reducing much risk. For foreign bonds, currency is a huge share of the risk, so hedging is usually worth it. Translating that: unhedged for S&P 500 (VFV) is defensible, hedged for international bond ETFs is standard.
The exception is retirees drawing down a portfolio in Canadian dollars over a short horizon. If you plan to sell CAD-denominated ETFs in the next 2 to 5 years to fund living expenses, hedging reduces the chance that a sharp CAD rally shrinks your purchasing power at the wrong moment.
PICK IN 60 SECONDS
- You are in accumulation (10+ year horizon) and want the simplest, lowest-cost core: VFV.
- You dislike seeing currency swings in your statements and will stay invested through them: XSP or VSP (they are near-identical, pick whichever has lower trading friction at your broker).
- You already hold USD and want to invest it directly: skip all three and buy VOO on the NYSE for 0.03 percent MER.
- You are 2 to 5 years from retirement and want predictable CAD returns: lean hedged for the equity sleeve you plan to spend first.
Hidden tax wrinkle: US withholding
All three ETFs hold the underlying US stocks inside a Canadian-listed wrapper, which means the US applies a 15 percent withholding tax on dividends before they ever hit the fund. Inside an RRSP, VFV, XSP, and VSP all suffer this drag identically (the RRSP exemption only applies if you hold the US-listed ETF, like VOO, directly). Inside a TFSA, the same drag applies to all three. If maximum tax efficiency on US dividends in an RRSP matters to you, hold VOO itself in US dollars.
Frequently asked questions
Is XSP or VSP better in 2026?
They are nearly identical: both hedge the S&P 500 to Canadian dollars and both charge roughly 0.09 to 0.11 percent all-in. Pick whichever has the tighter bid-ask spread at your broker, or VSP if you want the slightly lower stated MER. Do not own both.
Why did VFV outperform XSP so much over the last decade?
The US dollar strengthened sharply against the Canadian dollar between 2015 and 2024. VFV is unhedged so it captured that USD appreciation on top of the S&P 500's return. XSP and VSP hedged that currency gain away, which is exactly what they are designed to do.
Should I hold VFV in a TFSA or RRSP?
VFV works in both, but RRSP is slightly more tax-efficient for US dividends only if you hold the US-listed VOO directly. Inside a Canadian-listed wrapper like VFV, the 15 percent US withholding tax drag applies in both the TFSA and the RRSP equally. For simplicity, most Canadians just hold VFV in their TFSA.
How much does currency hedging actually cost?
The stated MER adds roughly 0.09 to 0.11 percent. On top of that, rolling currency forward contracts creates a tracking error of 15 to 40 basis points per year, depending on how far US and Canadian short-term interest rates diverge. Total friction is usually 25 to 50 bps per year.
Can I just buy VOO directly instead?
If you already hold US dollars (for example after a Norbert's Gambit conversion), VOO on the NYSE at 0.03 percent MER is cheaper than any Canadian-listed S&P 500 ETF. The catch is the FX conversion to USD at purchase and back to CAD at sale, which can erase the fee savings for smaller accounts.
Does hedging reduce risk?
It reduces one type of risk, currency volatility, by about 7 to 10 percent on an annual basis. It does not reduce the much larger equity risk of the S&P 500 itself. For long-horizon equity investors, currency volatility is a secondary concern, and most research suggests hedging equities is not worth the cost.