VFV:CA: S&P 500 Remains Expensive Relative To Canadian Large Caps

The Vanguard S&P 500 Index ETF (VFV:CA), offering unhedged currency exposure to the S&P 500 for Canadian investors, has marginally underperformed Canadian large-cap stocks year-to-date in 2025. Despite this, the S&P 500's trailing P/E multiple remains 25% higher than the FTSE Canada Domestic Index, leading to a Hold rating due to high valuation and potential U.S. dollar weakness; international sales present both opportunities and risks for S&P 500 companies.

Analysis

The Vanguard S&P 500 Index ETF (VFV:CA), providing unhedged currency exposure to the S&P 500 for Canadian investors, has marginally underperformed large-cap Canadian stocks in Canadian dollar terms year-to-date in 2025. Despite this recent lagging performance, the S&P 500 maintains a significant valuation premium, trading at a 25% higher trailing P/E multiple compared to equities within the FTSE Canada Domestic Index. This elevated current valuation, coupled with the potential for further U.S. dollar weakness, contributes to a cautious outlook and a 'Hold' rating for VFV:CA. Additionally, while international sales represent a significant component of S&P 500 company revenues, potentially boosting sales and margins, they also introduce downside risks, particularly in the event of trade turmoil, which could impact the ETF's performance.

Key Decisions for Investors

• Investors should carefully weigh the S&P 500's current 25% trailing P/E premium over the FTSE Canada Domestic Index against VFV:CA's recent underperformance in Canadian dollars.
• The unhedged nature of VFV:CA necessitates close monitoring of potential U.S. dollar weakness, which could further impact returns for Canadian-domiciled investors.
• Consider the dual nature of international sales for S&P 500 companies, which offer growth opportunities but also expose investments to risks from trade uncertainties.
• The analyst's 'Hold' rating on VFV:CA, stemming from high valuations and currency risks, suggests a prudent approach, prompting investors to assess if current conditions align with their risk appetite and outlook for U.S. equities versus Canadian alternatives.