Author Topic: VTI vs. VUN  (Read 10886 times)

J.Milly

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VTI vs. VUN
« on: April 06, 2015, 11:41:21 AM »
Hi guys, so starting out on the index journey, but I have a question. Living in Canada, with the garbage exchange at the moment, I have to decide between Vanguard Total Stock Market ETF (VTI) or the Vanguard Total US in CAD$(VUN). Background, 10k in cash burning a hole in my pocket doing nothing, and a 4k in company stock (TD).

VTI currently at 108.33 USD, meaning id have to pay 20% more to purchase with my CAD $

VUN is currently at 36.7 CAD, with its only holding being VTI. (only been around a year)

For my first lump sum purchase do I bite the bullet and go the USD route? Also why does the VUN not track the VTI perfectly, currently one is up, the other is down. Will be adding in a Vanguard Bond fund as well in the future. If this has been talked about to death then my bad!


forummm

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Re: VTI vs. VUN
« Reply #1 on: April 06, 2015, 11:48:34 AM »
Hi guys, so starting out on the index journey, but I have a question. Living in Canada, with the garbage exchange at the moment, I have to decide between Vanguard Total Stock Market ETF (VTI) or the Vanguard Total US in CAD$(VUN). Background, 10k in cash burning a hole in my pocket doing nothing, and a 4k in company stock (TD).

VTI currently at 108.33 USD, meaning id have to pay 20% more to purchase with my CAD $

VUN is currently at 36.7 CAD, with its only holding being VTI. (only been around a year)

For my first lump sum purchase do I bite the bullet and go the USD route? Also why does the VUN not track the VTI perfectly, currently one is up, the other is down. Will be adding in a Vanguard Bond fund as well in the future. If this has been talked about to death then my bad!

I don't know anything about this specific scenario. But it could be that VUN is up in CAD vs VTI in USD because of changes in the USD/CAD exchange rate, plus the fact that ETFs often trade for amounts that differ from the underlying value of the securities owned by the fund.

I wouldn't pay a 20% premium to buy the same underlying asset. I've seen Canadians talk about how they invest in US stocks with CAD here. Hopefully someone will chime in.

Heckler

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Re: VTI vs. VUN
« Reply #2 on: April 06, 2015, 12:14:04 PM »
I went VUN, mainly because of the price of VTI.  Do the math on quarterly dividends and the cost to reinvest them.  If your dividend is less than the cost of another unit, then you'll get cash.  If it's above the unit cost, you can set up a DRIP.

Heckler

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Re: VTI vs. VUN
« Reply #3 on: April 06, 2015, 12:31:24 PM »
March 2015 dividend for VUN required a minimum of $7300C invested in order to DRIP.  I don't know what VTI would have been.  Let me know when you figure it out!  (after your costs to convert to USD, buy, and then sell and convert back to CAD so you can spend your money - it wasn't worth it to me)

https://www.vanguardcanada.ca/individual/etf-distribution-history.htm?portId=9551
« Last Edit: April 06, 2015, 12:33:35 PM by Heckler »

Cathy

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Re: VTI vs. VUN
« Reply #4 on: April 06, 2015, 01:10:59 PM »
VTI currently at 108.33 USD, meaning id have to pay 20% more to purchase with my CAD $

VUN is currently at 36.7 CAD, with its only holding being VTI. (only been around a year)

As forummm says, you have fallen into the trap of thinking that the share price of two securities can be compared to derive some meaningful conclusion. You cannot do that because the share price is not a meaningful quantity for comparison. What you want to look at is the "net asset value": the amount of assets that you are getting when you buy one share of the ETF.

At the time of writing, VUN has a net asset value of 36.6846 CAD per share. Converted at the midmarket rate, one share of VUN buys you 29.43 USD of stocks. On the other hand, VTI has a net asset value of 107.40 USD per share. That means that one share of VTI is (loosely speaking) equivalent to 3.65 shares of VUN.

At any given moment, the ratio of the prices may not exactly match the ratio of the net asset values, but that's because the market is not perfectly efficient (e.g. due to transaction costs). Assuming no transaction costs, it doesn't matter whether you buy a fixed dollar amount of VTI or VUN -- you are purchasing the same amount of assets. It's not the case that one costs 20% more than the other one.

If you can only buy an integer number of shares and you want to keep the largest ratio of your money possible in stocks rather than cash, then as Heckler says, you want to optimise for the smallest price per share, but don't confuse this as thinking that you are getting "more" assets per share -- you are not.

As for the alleged "garbage exchange rate", are you sure you know enough about forex to make such a judgment? You should probably think long and hard about whether you actually know (i) what the exchange rate "should" be, and (ii) why the exchange rate currently differs from your theoretical model. Only after you figure those two things out are you in a position to make such a comment and act based on it. That said, if after doing that analysis you conclude that CAD/USD is currently undervalued, the correct move is not to buy either VTI or VUN (at least not without also buying some counterbalancing other securities), since both of those amount to going short on CAD/USD, because if CAD/USD appreciates, your US stocks will be worth less in CAD, which means the ticker price of VUN will go down, and although the ticker price of VTI won't change, you will get less CAD for your shares when you redeem them, so their value in CAD will also go down.
« Last Edit: April 06, 2015, 01:18:38 PM by Cathy »
This post contains only general information on the issues raised by this topic. This post does not provide help tailored to your specific situation. There are many facts that could be relevant to your specific situation and I am not in possession of those facts. If you need help tailored to your specific situation, you should retain an appropriate professional and not rely on this post.

J.Milly

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Re: VTI vs. VUN
« Reply #5 on: April 06, 2015, 01:30:21 PM »
^to Cathy,

I think the exchange rate is fairly valued at the moment, I mean I'm a layman's reflection in that even a year or two ago we were at par or slightly overvalued in comparison to USD because of our strong natural resource sector (mostly oil and lumber), and some perceived lack of strength in the American economy at the time. It's just the loss of equivalent purchasing power that stings with hindsight.  In essence it was more of an forex question as to which to go into, but I appreciate the well thought out answer! Thanks very much!

Heckler

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Re: VTI vs. VUN
« Reply #6 on: April 06, 2015, 01:33:30 PM »
VUS is your other option as a hedged Canadian version, which will follow VTI closer.  See what the unhedged VUN did in the last few months when the $C plummetted?  It'll do the opposite when the $C comes back up.
« Last Edit: April 06, 2015, 01:43:08 PM by Heckler »

nereo

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Re: VTI vs. VUN
« Reply #7 on: April 06, 2015, 02:54:47 PM »
VUS is your other option as a hedged Canadian version, which will follow VTI closer.  See what the unhedged VUN did in the last few months when the $C plummetted?  It'll do the opposite when the $C comes back up.

Quote
...Living in Canada, with the garbage exchange at the moment...

Perhaps this is pulling this too far OT, but could someone explain to me why there seems to be an overwhelming feeling that the CAD will equalize (as in: ~$1USD=$1CAD) over the next few years?  As someone who's paid in CAD but has family in the US, I'd love to see this happen, but I just am not seeing why it 'should' be higher.  I look at historical charts (those that include more than 2 decades) and there doesn't seem to be an obvious average.  My biggest concern is that Canada's GDP is so heavily weighted in fossil fuel, which are getting increasingly expensive to extract, especially compared with a lot of other producers.

what am I missing?
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691175002

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Re: VTI vs. VUN
« Reply #8 on: April 06, 2015, 03:09:46 PM »
Perhaps this is pulling this too far OT, but could someone explain to me why there seems to be an overwhelming feeling that the CAD will equalize (as in: ~$1USD=$1CAD) over the next few years?  As someone who's paid in CAD but has family in the US, I'd love to see this happen, but I just am not seeing why it 'should' be higher.  I look at historical charts (those that include more than 2 decades) and there doesn't seem to be an obvious average.  My biggest concern is that Canada's GDP is so heavily weighted in fossil fuel, which are getting increasingly expensive to extract, especially compared with a lot of other producers.
I don't think there is overwhelming feeling the rate will hit par but there are a lot of reasons to believe the current CAD/USD rate is unsustainable in the long run.  The price of oil has been roughly halved, Canada is looking at rate cuts and the US is expecting rate hikes.

Oil is the big factor here, if it hits $70-100 again our currency will get a very nice pop.  There is a very strong feeling that could happen 1-2 years out.

Just remember that currencies are notoriously hard to predict in the short/medium term and have a tendency to trend for very long periods of time.
« Last Edit: April 06, 2015, 03:11:26 PM by 691175002 »

Cecil

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Re: VTI vs. VUN
« Reply #9 on: April 06, 2015, 03:59:59 PM »
I hold both VTI and VUN - they are essentially the same except for tax treatment.

VUN is a TSX-listed wrapper for VTI, and it trades in Canadian dollars. If VTI doesn't change, but the CAD dollar goes up 1%, then VUN will drop 1% (because VTI is now worth 1% less in terms of the canadian dollar).

All that is to say - they are equivalent. The advantage of buying VUN is that you don't incur the cost of exchanging your CAD into USD, as the fund takes care of it. When you hold VUN, you are holding VTI.

The difference comes if you are holding them inside an RRSP. In an RRSP, there is no tax on foreign dividends (normally you pay the US govt a 15% withholding tax). However, this is only the case if you hold VTI directly. If you hold VUN in your RRSP, the 15% foreign dividend tax is swallowed by the VUN wrapper and you can't recover it.

In a TFSA, you have to pay the 15% tax no matter which one you hold, and in an unregistered account you can get a foreign dividend tax credit no matter which one you hold.

Summary: hold VUN in your TFSA and registered account (to avoid forex fees), and VTI in your RRSP (to avoid the 15% foreign dividend tax).

My Own Advisor

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Re: VTI vs. VUN
« Reply #10 on: April 06, 2015, 04:04:03 PM »
Nothing wrong with either.

I'm a fan of U.S. listed ETFs myself.

VTI is also cheaper than VUN from a money management perspective. 
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nereo

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Re: VTI vs. VUN
« Reply #11 on: April 06, 2015, 04:15:13 PM »
Perhaps this is pulling this too far OT, but could someone explain to me why there seems to be an overwhelming feeling that the CAD will equalize (as in: ~$1USD=$1CAD) over the next few years?  As someone who's paid in CAD but has family in the US, I'd love to see this happen, but I just am not seeing why it 'should' be higher.  I look at historical charts (those that include more than 2 decades) and there doesn't seem to be an obvious average.  My biggest concern is that Canada's GDP is so heavily weighted in fossil fuel, which are getting increasingly expensive to extract, especially compared with a lot of other producers.
I don't think there is overwhelming feeling the rate will hit par but there are a lot of reasons to believe the current CAD/USD rate is unsustainable in the long run.  The price of oil has been roughly halved, Canada is looking at rate cuts and the US is expecting rate hikes.

Oil is the big factor here, if it hits $70-100 again our currency will get a very nice pop.  There is a very strong feeling that could happen 1-2 years out.

Just remember that currencies are notoriously hard to predict in the short/medium term and have a tendency to trend for very long periods of time.
Ok - for clarification when you say that 'the current CAD/USD rate is unsustainable' - you are saying that the CAD has to strengthen over the next two years?
There are two things that worry me - 1) historically when I look at the CAD/USD trend I see most of the 80s, 90s and early 2000 where it was at or below current levels.  Besides the spike around 2009-2013, the last sustained strong period corresponded to the 1970s US inflation spike & oil spike.
2) from what i've been reading the US has drastically increased their fossil fuel extraction, and their cost to extract oil & natural gas (on average) is less than that of Canadian fields.  While rising crude prices would help Canada, wouldn't it help the US even more.

I realize global comparisons are far more complex than just looking at two factors, but that's why I don't get comments like "the current exchange is garbage" or "it can't stay this low very long" or "the current rate is unsustainable".  Couldn't it also stay this low for the next 1-2 decades?
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J.Milly

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Re: VTI vs. VUN
« Reply #12 on: April 06, 2015, 05:11:46 PM »
Now theres another contender, VUS vs. VUN, is there a definite adv. or disadv. of holding the CAD hedged one?

And I do agree with the thought that there shouldn't be a 1:1 e.r. equivalency between the two, i would tend to think the USD would be stronger by 10-15%

nereo

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Re: VTI vs. VUN
« Reply #13 on: April 06, 2015, 05:37:06 PM »
Now theres another contender, VUS vs. VUN, is there a definite adv. or disadv. of holding the CAD hedged one?

And I do agree with the thought that there shouldn't be a 1:1 e.r. equivalency between the two, i would tend to think the USD would be stronger by 10-15%
ok.... but why???!  Why do you think the dollar should be stronger by 10-15%?  Why not -3% or +30%?  Both have been true in the past quarter-century.
I keep hearing over and over that the CAD will get stronger, probably in the next year or two.  Maybe this is just regional bias (I'm in Canada) - but I can't find anyone who thinks the recent slide will deepen, and most people seem to have some 'comfort zone' as to where the Loonie should return to - but it's a complete mystery to me.
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Cathy

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Re: VTI vs. VUN
« Reply #14 on: April 06, 2015, 05:42:28 PM »
... I can't find anyone who thinks the recent slide will deepen...

I think I've come out as being short CAD/USD in some posts on this forum (although I don't live in Canada). Almost all of my money is in USD, other than as necessary to satisfy some CAD obligations. Just today I converted another 10,000 CAD to USD from my Canadian tax refund. I also have about 25,000 CAD in outstanding debt which is a further way to short CAD/USD (since if CAD/USD declines, it will take fewer USD to pay off the 25,000 CAD debt). I'm not really interested in giving my reasons for having this view because I wouldn't want to be interpreted as giving forex trading advice.

I will say this though. People who have simplistic "CAD/USD is cheap" views tend to be the same people who think they can extract their money from the stock market the day before it crashes, and then re-enter at the base of the crash. They also tend to think they can predict housing market crashes either in Canada or the bay area. The fact that retail investors seem bullish on CAD/USD could be a contrarian indicator.
« Last Edit: April 06, 2015, 05:50:01 PM by Cathy »
This post contains only general information on the issues raised by this topic. This post does not provide help tailored to your specific situation. There are many facts that could be relevant to your specific situation and I am not in possession of those facts. If you need help tailored to your specific situation, you should retain an appropriate professional and not rely on this post.

Heckler

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Re: VTI vs. VUN
« Reply #15 on: April 06, 2015, 06:01:18 PM »
interesting graph Nereo.  That proves my statement that the exchange rate will go up again, just as it will go down again.  And up again.  And then down.

J.Milly

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Re: VTI vs. VUN
« Reply #16 on: April 06, 2015, 06:44:16 PM »
I think it has more to do with a recent historical bias than anything, I recall or seem to feel anyways that the USD was 15-20 points stronger over a good portion of my memory. Obviously this isn't a scientific or intelligent point of view, and is probably a fallacy in my thinking but I fully realize that it's a complete guessing game.

691175002

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Re: VTI vs. VUN
« Reply #17 on: April 06, 2015, 08:04:18 PM »
Ok - for clarification when you say that 'the current CAD/USD rate is unsustainable' - you are saying that the CAD has to strengthen over the next two years?
1) historically when I look at the CAD/USD trend I see most of the 80s, 90s and early 2000 where it was at or below current levels.  Besides the spike around 2009-2013, the last sustained strong period corresponded to the 1970s US inflation spike & oil spike.
2) from what i've been reading the US has drastically increased their fossil fuel extraction, and their cost to extract oil & natural gas (on average) is less than that of Canadian fields.  While rising crude prices would help Canada, wouldn't it help the US even more.
Unsustainable might have been an aggressive way to put it.

Exchange rates are set by supply and demand.  When the USD appreciates relative to the CAD it is because people want to buy US exports or investments, and do not want to buy Canadian exports or investments

With respect to your points:
#1: Exchange rates are not mean-reverting (especially when the rate of inflation differs between countries).  Purchasing power parity tends to hold over long time periods.
#2: The US is an importer of oil while Canada is an exporter.  Energy is also a proportionally smaller component of the US economy.

The CAD to oil correlation is historically very strong, and is probably driven in the short term by speculation.  In the longer term high oil prices will increase the rate of GDP growth, create demand for Canadian exports (oil), make Canadian investments more desirable, and lead to higher interest rates (our bonds become more appealing to global investors, higher expected equity returns), etc... All of which are factors that would increase demand for CAD.

Note that having an opinion on the equilibrium exchange rate doesn't give you an edge in the market.  Equity returns are very predictable in the long run (6-8% a year) and oil prices are likely to increase (as implied by futures) but that knowledge doesn't create risk-free opportunities to make money.

I am not an expert in currencies.

Dmaynard

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Re: VTI vs. VUN
« Reply #18 on: June 20, 2018, 07:31:09 AM »
I was wondering the same thing, VTI vs VUN for Canadians.

- On the one hand VTI has a lower MER (0.04% versus 0.16%), but that really would only amount to a $1,200 difference after you'd earned 1 million dollars, so (relatively) small potatoes.
- On the other hand you run the risk of getting dinged with the cost of the currency conversion when buying and selling, but if you use a bank that doesn't charge you for currency conversions for investments (like CIBC's investor's edge) you get to sidestep that issue.
- You could also buy depending on how you think the Canadian economy is going to perform relative to the American economy in the future, but this is just a version of currency speculation, so at that point you're just gambling.

I think what might work best is to hold both in relatively equal proportions (maxing out your VTI in your RRSP first to avoid those withholding taxes though), then when you get to retirement and start drawing down your 4% annually you can preferentially sell off whichever one seems to be doing best currently.

terran

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Re: VTI vs. VUN
« Reply #19 on: June 20, 2018, 08:07:35 AM »
- On the one hand VTI has a lower MER (0.04% versus 0.16%), but that really would only amount to a $1,200 difference after you'd earned 1 million dollars, so (relatively) small potatoes.

I don't know much about the foreign exchange part of this (and thankfully don't need to since I'm in the US), but I would question whether the $1200 difference really isn't a big deal? At a 4% withdrawal rate that $1200 difference in fees is 3% of your annual budget bringing you down from $40k to $38.8k. All other things being equal (which maybe they're not) I can certainly think of better ways to spend $100/month than extra investing fees. Now, whether or not that $1200 is worth it to have CAD denominated investments I couldn't say, so hopefully someone more well versed in forex can chime in.

Retire-Canada

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Re: VTI vs. VUN
« Reply #20 on: June 20, 2018, 02:52:47 PM »
I was wondering the same thing, VTI vs VUN for Canadians.

- On the one hand VTI has a lower MER (0.04% versus 0.16%), but that really would only amount to a $1,200 difference after you'd earned 1 million dollars, so (relatively) small potatoes.
- On the other hand you run the risk of getting dinged with the cost of the currency conversion when buying and selling, but if you use a bank that doesn't charge you for currency conversions for investments (like CIBC's investor's edge) you get to sidestep that issue.
- You could also buy depending on how you think the Canadian economy is going to perform relative to the American economy in the future, but this is just a version of currency speculation, so at that point you're just gambling.

I think what might work best is to hold both in relatively equal proportions (maxing out your VTI in your RRSP first to avoid those withholding taxes though), then when you get to retirement and start drawing down your 4% annually you can preferentially sell off whichever one seems to be doing best currently.

I used Norbert's Gambit to turn ~$300K CAD of VUN into VTI for something like a one time fee of $30. My back of the napkin calculations at the time were that between the lower MER and elimination of the withholding tax in my RRSP on VUN dividends I'd save over $1K/yr in fees/taxes. Given my FIRE budget is a $40K/yr spend + taxes saving $1K+/yr for doing nothing but swap funds is pretty hard to give up.

To keep things simple any new US stock additions I put into VUN to avoid the foreign exchange hassle/cost. It also provides some easy to sell US equities as I am getting close enough to FIRE to think about a withdrawal plan.

One issue with your post above [in bold] is that VUN and VTI are the same thing so they will always be "doing" the same. If you ignore the foreign exchange costs selling $100 CAD of VTI is the same as selling $100 CAD of VUN at any given moment regardless of the exchange rate. There is no way to pick one over the other and gain a financial advantage in withdrawal.
« Last Edit: June 20, 2018, 02:54:54 PM by Retire-Canada »

Heckler

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Re: VTI vs. VUN
« Reply #21 on: June 20, 2018, 08:17:42 PM »
as a noob in 2015, I went with VUN in my RRSP.  Now that I'm comfortable buying and selling large values of ETFs, I am buying VTI with an annual lump sum >20$ at a time using norberts gambit for fx.

Over the next 25 years, if you add $30k to either per year for the rest of your life, I calculated the difference to be $118,000 due mostly to withholding taxes in the distributions - currently 1.31% vs 1.82%.  I don't plan to work that long though.

For me adding $20k per year for 5 more years, then stopping contributions, it's a $50k difference over my life.  Not chump change.  If I spend the USD instead of converting back to CAD, then the trading costs are reduced more since you only go one direction when you buy.

The forex difference is completely irrelevant - if you buy VUN today, the fx rate is included in today's price, as are Vanguards exchange costs.  You will have a very similar fx today if you exchange cad-us then buy VTI.    Performance must also be measured in the same currency, or the comparison is irrelevant.


I just noticed VTI MER is 0.04, not 0.05.  That saved me another $1000 over lifetime.

source:
https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf?ext=.pdf




« Last Edit: June 20, 2018, 08:21:20 PM by Heckler »

Heckler

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Re: VTI vs. VUN
« Reply #22 on: June 20, 2018, 08:25:59 PM »

I used Norbert's Gambit to turn ~$300K CAD of VUN into VTI for something like a one time fee of $30. My back of the napkin calculations at the time were that between the lower MER and elimination of the withholding tax in my RRSP on VUN dividends I'd save over $1K/yr in fees/taxes. Given my FIRE budget is a $40K/yr spend + taxes saving $1K+/yr for doing nothing but swap funds is pretty hard to give up.


or is it worth $100k to your lifetime?

Retire-Canada

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Re: VTI vs. VUN
« Reply #23 on: June 20, 2018, 08:42:28 PM »
or is it worth $100k to your lifetime?

I'll take it either way. :)

Especially since it was a one time transaction for me during the accumulation phase so my cost to buy VTI was really low.


Dmaynard

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Re: VTI vs. VUN
« Reply #24 on: July 06, 2018, 08:25:53 AM »

One issue with your post above [in bold] is that VUN and VTI are the same thing so they will always be "doing" the same. If you ignore the foreign exchange costs selling $100 CAD of VTI is the same as selling $100 CAD of VUN at any given moment regardless of the exchange rate. There is no way to pick one over the other and gain a financial advantage in withdrawal.

What I meant is that you sell off whatever one has the best exchange rate when it's time to sell.

Example: (All values listed in CAD) If I bought $100 of VUN and $100 of VTI when the exchange rate was 1 CAD =0.75 USD, and years later when I was looking to sell my shares had doubled in value and the exchange rate was now 1 CAD = 1 USD I would sell off my VUN before my VTI, because even if the VTI was purchased with Canadian currency at the time it is still held in USD.

Calculation breakdown:
VUN
Cost: $100 CAD
Value after X years: (Initial value) x (percent increase) x (1 + (difference between currency price at purchase - at sell)) ($100 x 200% 1+(1-1)) = $200

VTI
Cost: $100 CAD
Value after X years: (Initial value) x (percent increase) x (1 + (difference between currency price at purchase - at sell)) ($100 x 200% 1+(0.75-1)) = $150

Granted, this ignores all the other factors like the difference in MERs, and withholding tax, and any dividends that you're receiving over this period as the exchange rate is shifting. But, it does give you a little insulation in case you're concerned that the exchange rate might shift dramatically between when you buy and when you hope to retire.

Unless my math is way off, which is entirely possible.

Retire-Canada

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Re: VTI vs. VUN
« Reply #25 on: July 06, 2018, 08:54:16 AM »

One issue with your post above [in bold] is that VUN and VTI are the same thing so they will always be "doing" the same. If you ignore the foreign exchange costs selling $100 CAD of VTI is the same as selling $100 CAD of VUN at any given moment regardless of the exchange rate. There is no way to pick one over the other and gain a financial advantage in withdrawal.

What I meant is that you sell off whatever one has the best exchange rate when it's time to sell.

Example: (All values listed in CAD) If I bought $100 of VUN and $100 of VTI when the exchange rate was 1 CAD =0.75 USD, and years later when I was looking to sell my shares had doubled in value and the exchange rate was now 1 CAD = 1 USD I would sell off my VUN before my VTI, because even if the VTI was purchased with Canadian currency at the time it is still held in USD.

Unless my math is way off, which is entirely possible.

Your math is off.

Scenario

- you buy $100 CAD of VTI and VUN on the same day with exchange of 1 CAD = 0.75 USD
- your shares in the underlying US equities double in value
- you sell both when 1 CAD = 1 USD
- ignore MERs/exchange fees/trade fees/dividends

VUN

- $100 CAD buys X shares of US equites worth $75 USD
- on day of sale you still have X shares of US equities worth $150 USD
- you sell them at get $150 CAD at the current exchange

VTI

- $100 CAD buys x shares of US equities worth $75 USD
- on day of sale you still have X shares of US equities worth $150 USD
- you sell them and get $150 CAD at the current exchange

No difference.

Where your calculations went wrong is that you doubled the value of each account in both currencies. In reality if the CDN dollar got significantly stronger over the timeframe of the investment VUN's returns shown in CAD would be lower as a % than VTI's returns shown in USD.

The way to look at it is both VUN and VTI buy exactly the same underlying investments so they cannot have a different value ever once you take out fees/taxes and such.
« Last Edit: July 06, 2018, 08:59:53 AM by Retire-Canada »

Retire-Canada

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Re: VTI vs. VUN
« Reply #26 on: July 06, 2018, 09:06:17 AM »
Here is another way to look at it.

Day 1

- buy $100 CAD VUN
- buy $100 CAD VTI @ $1 CAD = $0.5 USD = $50 USD of VTI

Day 2 [next day]

- exchange changes to $1 CAD = $1 USD
- markets are flat
- suddenly VUN reports a price of $50 CAD for your shares as your $50 USD of equities only buy $50 CAD now
- VTI stays the same at $50 USD

When you look at a VUN price chart in CAD it shows the performance of US equities and the CAD to USD exchange rate combined.

Dmaynard

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Re: VTI vs. VUN
« Reply #27 on: July 06, 2018, 09:50:56 AM »
Here is another way to look at it.

When you look at a VUN price chart in CAD it shows the performance of US equities and the CAD to USD exchange rate combined.

Interesting. Okay, so what am I missing in this graph?: https://ca.finance.yahoo.com/quote/VTI/chart?p=VTI#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%3D

Shouldn't the value of VUN be equal to VTI plus the exchange rate?

Retire-Canada

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Re: VTI vs. VUN
« Reply #28 on: July 06, 2018, 08:15:31 PM »
In general their performance factored for the exchange rate should be equal since they follow the same index. VUN started 5yrs ago so not sure what the impacts of that are on the early years of returns as they ramp up. VUN now has 1.4B assets vs. VTI with 98.4B in assets.

I grabbed 2017 data off the Vanguard site:

- VTI = 21.05%
- VTI Benchmark = 21.19%
- VUN = 13.58%
- VUN Benchmark = 14.05%
- USD-CAD 2017 = -6.47%

There will be fund tracking errors, differences in MERs and taxes if you are comparing dividends. 
« Last Edit: July 06, 2018, 08:35:12 PM by Retire-Canada »

thewizard

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Re: VTI vs. VUN
« Reply #29 on: July 20, 2018, 02:14:06 PM »
Great couch potato post on this as well.

https://canadiancouchpotato.com/2014/01/13/how-a-falling-loonie-affects-us-equity-etfs/comment-page-1/

I think the real question is when does it make sense to hold vti instead of vun in your registered portfolio?

What portfolio size overwhelms the mer difference, additional forex and additional accounting?

Retire-Canada

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Re: VTI vs. VUN
« Reply #30 on: July 20, 2018, 05:22:22 PM »
I think the real question is when does it make sense to hold vti instead of vun in your registered portfolio?

What portfolio size overwhelms the mer difference, additional forex and additional accounting?

My cost was something like $30 to swap from VUN to VTI and time was under 30mins.  No currency exchange costs using Norberts' Gambit beyond the $30 to pay for trades. The combined MER and tax benefit in a RRSP is ~0.5%. So it doesn't need to be a huge amount of money before it's worth your while.

Since it's in a RRSP there is no real need to do any special accounting since you won't be paying capital gains taxes when you sell. Instead of 4 funds in my portfolio I have 5, which is next to no incremental accounting effort.

thewizard

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Re: VTI vs. VUN
« Reply #31 on: July 21, 2018, 12:17:09 PM »
Thanks for the response but I misspoke and meant to say non-registered.

I am closer to FIRE then originally planned and now have to think about the additional currency conversion/hassle when withdrawing.

Another consideration is US Estate taxes for some.

Retire-Canada

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Re: VTI vs. VUN
« Reply #32 on: July 21, 2018, 06:26:49 PM »
Thanks for the response but I misspoke and meant to say non-registered.

I am closer to FIRE then originally planned and now have to think about the additional currency conversion/hassle when withdrawing.

Another consideration is US Estate taxes for some.

I know nothing about US Estate Taxes. That aside the MER difference is 0.04% vs. 0.16% so ~0.12%. So on $50K VUN costs you $50 more per year. Given the costs to do Norbert's Gambit at Questrade I posted you'd break even in just over 7 months.

If you plan to retire soon you do need to figure out how you will be withdrawing money. For myself that will be almost entirely from my RRSP since I need to reduce the value of that account before high mandatory withdrawals are forced upon me with their accompanying tax hit. So I've left ~$100K in VUN for easy access and the rest in VTI for long haul fee/tax reduction.