Why the difference in performance of exchange-traded funds (ETFs) which mirror the S&P 500?

On September 4, 2019, from John G….. Ontario, Canada


The three Canadian ETF’s which follow, mirror the S&P 500:

  1. BMO S&P 500 INDEX CAD UNT ETF Symbol ZSP (not currency-hedged)
  2. VANGUARD S&P 500 Index ETF, Symbol VSP (currency-hedged)
  3. iShares Core S&P 500 Index ETF, Symbol XSP (currency-hedged)

Over the last decade, as expected, XSP and VSP have appreciated as much as the S&P 500 has — a little over 100%. ZSP has appreciated about 180%.

Please explain the difference.

Thank you.

Monday Morning Millionaire Program Answer:

Currency hedging removes the effect of foreign exchange fluctuations.

For instance, if your ETF was CAD-hedged and the CAD weakened relative to the US dollar by 5% over a certain period during which the S&P500 rose 15%, then your return would be 10% for that period. If the CAD appreciates relative to USD, then the opposite is true, of course.

Non-hedged means you will get the return of the S&P500 in USD terms and you benefit if USD gains strength over the CAD.

Over the last decade, USD has strengthened relative to the CAD, which is why ZSP (non-hedged) has outperformed.



Dr. Milan Somborac

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