VCN or The Vanguard FTSE Canada All Cap Index ETF was launched on the 2nd of August, 2013.
It has since then amassed a total net asset value of $2.2 billion thus far.
VCN currently trades at $30.17 per stock.
VGRO and VCN are both all-in-one ETF’s that invest in the world, US and Canadian stocks plus bonds, but VGRO is more aggressive (Vanguard GROwth, 20% bonds), and VCN is more conservative (60% bonds). There’s also a third option, VBAL that’s 40% bonds.
In case you don’t know, VCN is managed by the Vanguard Investments Canada Inc. and its distributions are paid out every quarter. All of the dividend distributions are paid within ten days to each quarter-end.
When you’re 30, buy VGRO and reinvest the annual distribution (compounding effect).
When you’re 45 – 50, start investing in some VBAL or VCN.
When you’re 55 and beyond, buy exclusively VCN. By doing that, you could dial down your volatility over the years, without ever selling and taking capital gains hit.
In this review we are trying to help you decide if VCN is the right for you, how risky is, how does it compare to other ETFs in terms of market growth and stability, what is it composed of (characteristics), and everything else you need to know about this popular fund.
Now, let’s get started.
What Is VCN All About?
The goal of VCN is to track the performance of a broad Canadian equity index that measures the return on investments of large-mid and small-capitalization, publicly traded securities in the Canadian market.
The tracking is done to the best possible and reasonable extent and the market returns are only measured before fees and expenses are deducted.
VCN is only for Canadian Stocks.
VGRO and VBAL are Global i.e. include Canadian, US, International, Developing and Emerging Countries, and Corporate Bonds.
Basically, you should choose between VGRO and VBAL based on your risk tolerance. VBAL will fluctuate less during volatile times (like the recent pandemic crash)
With VCN, The current index being tracked is the FTSE Canada All Cap Index. Thus VCN invests in all kinds of Canadian stocks.
The fund’s primary industries of interest are the Financials, Oil & Gas, and Industrial sectors. These industries account for 37%, 19.1% and 12.6% of the fund’s investments.
VCN also invests in other sectors such as – Basic Materials, Consumer Services, Consumer Goods, Technology, Utilities, and Telecommunications industries.
Here a list of VCN’s top ten investments and the corresponding percentages:
1. Royal Bank of Canada 7.0%
2. Toronto-Dominion Bank 6.5 %
3. Enbridge Inc. 4.7%
4. Canadian National Railway Co. 4.1%
5. Bank of Nova Scotia 4.0%
6. Suncor Energy Inc. 3.2%
7. Bank of Montreal 3.0%
8. TC Energy Corp. 2.9%
9. Brookfield Asset Management Inc. 2.5%
10. Canadian Imperial Bank of Commerce 2.2%
These top ten VCN investments account for 41% (208 in number) of the fund’s total investments.
VCN Fund Facts
|VCN Management Fee||0.05%|
|VCN MER Fee||0.06%|
|VCN Inception Date||02-08-2013|
|VCN Benchmark||FTSE Canada All Cap Index|
|Net assets||$2.2 Billion|
|VCN 12 months trailing yield||3.04%|
|VCN Dividend Distribution yield||2.12%|
|Income distribution per unit||$0.158082|
|Accounts Eligible||RRSP, RRIF, RESP, TFSA, DPSP, RDSP|
How Risky Is It To Invest In VCN?
As always, the best way to determine the risk rating of an ETF is its volatility.
This represents the change in the ETF’s returns over time. More volatile ETFs are known to have more return on investments alongside with higher risk of losing money. The volatility of the fund will guide you on how best to proceed when investing.
Vanguard has given The Vanguard FTSE Canada All Cap Index ETF (VCN) a volatility rating of “Low to Medium”.
This means that your chances of you losing money is not high. Like I said earlier on, a high volatility rating indicates you will make more money, but it also signifies a high chance of you losing all your money.
You should know, going forward, there are no guarantees on investments. You stand a chance of losing some or all of your money in any investment.
VCN is a Canadian Index ETF, 100% equities which basically holds the largest Canadian companies.
Whereas, ETFs like VGRO is all in one ETF (an ETF that holds multiple different ETFs within it) with 80% equities and 20% bonds.
VGRO includes mostly US & Canadian ETFs with about 5% in emerging markets. There is likely some cross over between both the ETFs but their style of investing is different.
VCN is meant to track the TSX pretty much while VGRO holds Canadian & US markets and bonds as well.
Market Performance Of VCN
I will be discussing the market performance of VCN over the course of 5 years in this section.
You should know that an ETF’s previous performance does not give adequate information on how it will perform in the future. This information is just to help you assess how risky the ETF has been in the past.
Starting from 2014 up to 2018, VCN has experienced several ups and downs.
The return on investments for the years 2014, 2015, 2016, 2017 and 2018 were 9.80%, -8.74%, 21.46%, 8.46%, and -9.06% respectively.
So far till May 2020, the best month in which the highest return on investment was recorded was in March 2019 where the stock price was at its highest. There was a total of 12.62% return for the month. A $1000 investment would have yielded a $126 return.
The worst month to invest In VCN was in December 2018. There was -10.22% return on investments. A $1000 investment, would have fallen to $898. Now, that’s how volatile the ETF really is.
VCN from its inception till May 31, 2019, an investment of $1000 in the Vanguard FTSE Canada All Cap Index ETF (VCN), would have yielded $1478 to date. This equates to a compound return rate of 6.93%.
Screenshot Of VCN Total Returns over time (Since Inception)
Screenshot Of Growth of $10,000 invested over time (Since Inception)
VCN is currently trading at a price of $30.14 CAD.
Just like any other ETF, VCN has the market price (listing price) and the Net Asset Value (NAV).
VCN units are sold at the market price during the regular trading day. It can vary across each period of the trading day and is especially volatile at the beginning and end of the trading day. That’s just the normal case with any other TSX ETF as well.
You should use limit orders to trade during the regular market hours (if options trading). This will help you avoid being subject to random changes (market volatility and fluctuations) in the market price.
The Vanguard FTSE Canada All Cap Index ETF (VCN)’s market price falls between $28.09 and $33.72 for a twelve-month period.
Just in case you don’t know – The NAV price of any ETF is calculated at the end of the trading day. It is used to prepare reports at the close of each trading day. It reflects the value of the ETF investments at the end of the trading day.
Here’s a list of all the additional fees and charges you might want to know before investing in VCN:
1. VCN Taxation
Capital returns on all of your investments will form a part of your taxable income. The amount of tax to be deducted will depend on the tax laws of the location you live in (province I mean).
If you hold VCN in a registered account such as the Tax-Free Savings Account (TFSA), the amount of tax to be paid will definitely reduce.
In case you do not want to use a registered account, dividend distributions from VCN will also be taxed. This is regardless of whether you reinvest or collect them in cash.
2. VCN Brokerage Commissions
You may have to pay a brokerage commission every time you trade your ETF units. That’s the usual norm across the industry.
The amount to be paid will be determined by the brokerage firm you use. If you open an account with Questrade, you can minimize the costs, as ETF trading in Questrade is totally free (buy or sell).
3. VCN ETF Expenses
While you do not have to pay the fees directly, they are important because ETF fees affect your overall market returns.
The most significant expense is the Management expense ratio (MER).
This is the fee you pay for the management and operating of the ETF. The MER is now set at 0.06% of the returns you make.
4. VCN Trailing Commission
The trailing commission is what you’ll have to pay for as long as you own an ETF. It is charged for the services and advice that your representatives and firms provide you.
The Vanguard FTSE Canada All Cap Index ETF (VCN) does not currently have any trailing commissions.
VCN vs. XIC
First of all, VCN, as we know, is from the Vanguard family of funds and XIC is from Blackrock.
Both these ETFs are very similar in terms of investments, the market index they track and so is this comparison.
Here’ a quick breakdown and comparison between VCN and XIC in terms of the overall market returns:
From the first screenshot below, you can notice that for the maximum timeframe selected (to identify returns better and market-tested) almost the returns of VCN and XIC are on par.
There’s a slight edge to VCN over XIC in terms of better gains. Apart from that, everything remains intact and choosing one over the other doesn’t really make a big difference.
From the second screenshot below, you can notice that when it comes to ETF dividends, XIC pays out a 2.94% dividend every quarter whereas VCN pays slightly less at 2.74%. Again, not much of a difference.
We can finally conclude with this comparison that, choosing VCN or XIC is an individual choice, however, there is not much of a difference as these ETFs have the same investment patterns and track the same index.
Also, when it comes to dividends they are pretty much the same with not much of a difference.
VCN vs. XIU
XIU is a TSX 60 fund. Larger cap, more concentrated. VCN follows an all-cap index with more small/mid-cap.
The difference in MER – 0.06% VCN versus 0.18% XIU, which translates to higher tracking error for XIU (take a look at the historical performance).
Exposure to Canadian equities in VCN totals 220 holdings versus XIU with 60, more diversification in VCN given larger subset.
The top 10 holdings of VCN make up 40% of the fund’s holdings versus XIU whose top 10 make up 50%.
VCN has a slightly higher yield at 2.80% versus XIU at 2.77%.
Sector weighting is fairly on par, with financials, energy, industrials and materials making up 79%-80% of the overall exposure.
VCN vs. VGRO
VGRO is another popular ETF from the Vanguard Fund House.
VGRO holds the following ETFs (percentages included):
VUN: Vanguard US Total Market Index ETF 31.3%
VCN: Vanguard FTSE Canada All Cap Index ETF 23.2%
VIU: Vanguard FTSE Developed All Cap ex North America Index ETF 18.6%
VAB: Vanguard Canadian Aggregate Bond Index ETF 12.5%
VEE: Vanguard FTSE Emerging Markets All Cap Index ETF 5.7%
VBG: Vanguard Global ex-US Aggregate Bond Index ETF CAD-hedged 4.9%
VBU: Vanguard US Aggregate Bond Index ETF CAD-hedged 3.8%
Let’s compare to see if VGRO market returns are actually better than VCN over the past 5 years.
Always remember, consider the longer time duration to know the returns and investment better.
As you can see, VGRO returns are slightly better than VCN.
In short, VGRO already contains VCN within it.
You already hold both VCN and VGRO if you have VGRO.
If on the other hand you only held VCN, then you would miss out on all the other things within VGRO and as a result, your portfolio wouldn’t be very diversified.
The beauty of VGRO is that it is fully diversified in equities and bonds to a global market, VCN is exclusively for Canadian equities.
VCN vs. ZSP
ZSP is from BMO. It is an S&P 500 Index ETF.
Let’s quickly compare the market returns of VCN vs. ZSP here:
ZSP is miles ahead in terms of market returns when compared to VCN.
VCN vs. VFV
Both VCN and VFV are from the Vanguard fund house. VFV belongs to the S&P 500 Index Fund.
Let’s quickly compare the market returns and determine which is the better of the two.
As you can see from the market chart above, the returns of VFV is miles ahead when compared to VCN.
VCN vs. XRE
XRE is from the BlackRock fund house. It is one of the most popular ETFs among Canadians.
Let us quickly compare the market returns of VCN vs. XRE here.
If you are looking for an ETF that will provide you with long-term capital growth and you want to invest in Canadian small-mid and large-capitalization equity securities, then the Vanguard FTSE Canada All Cap Index ETF (VCN) is for you.
VCN has been around for several years and it’s one of the most loved Canadian ETFs around.
Yes, the fund is extremely volatile but that does not mean the returns are not great. It’s excellent in fact.
Always do remember to hold investments for a long period of time to reap the true benefits and growth. That’s the case with all the ETFs or any individual stocks.
If you like the content of this article and find it helpful, please share it on social media and help spread the word. Also, let me know your thoughts and comments in the comment box below.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.