The Concentration Problem in VFV — A Canadian Investor Guide

VFV looks diversified. It isn't. 10 stocks control 40% of the index. Here's what Canadian investors holding VFV actually own — and what the history says.

⚠️ This is educational content, not investment advice. Please consult a qualified financial advisor for guidance specific to your situation.

What VFV Actually Is

VFV - the Vanguard S&P 500 Index ETF tracks the 500 largest publicly traded companies in the United States by market capitalization. It is listed on the TSX, priced in Canadian dollars, it is one of the largest ETFs in Canada.

What it is not, despite the name, is an equal slice of 500 companies. It is a market-cap-weighted fund, meaning bigger companies get a bigger piece.

The Magnificent Seven Problem

Seven companies currently dominate the S&P 500 in a way that has no modern precedent: Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla. Together they account for roughly 34% of the entire S&P 500's market capitalization.

Expand to the top 10 — adding Broadcom, Berkshire Hathaway, and JPMorgan Chase — and that figure swells to approximately 40%.

Nvidia alone carries more weight in the S&P 500 than the entire energy sector, the entire utilities sector, and larger than most countries' entire stock markets. Every Canadian who holds VFV is making a meaningful bet that Nvidia continues to dominate the AI chip market.

What History Says About Extreme Concentration

The last time top-end concentration approached current levels, the S&P 500 entered what became known as the Lost Decade. The index delivered a cumulative loss of approximately 9% from 2000 to 2009 — negative real returns for an entire decade.

During that same period, globally diversified investors fared considerably better. International stocks, emerging markets, and Canadian equities all outperformed. This is not a prediction that history will repeat. But it is a reminder that concentration risk is real and has materialized before.

The Sector Problem

Beyond individual stocks, VFV carries significant sector concentration. Information Technology alone accounts for roughly 32-34% of the index. Add Communication Services (~10%) and Consumer Discretionary (~10%), and you have more than half the index in three sectors — all closely linked to technology spending and AI investment cycles.

What is notably underrepresented: energy (~3.5%), utilities (~2.4%), real estate (~2.3%), and materials (~2.3%) — sectors that tend to perform well during inflationary periods and commodity cycles.

A global fund like XEQT has meaningful exposure to Canadian energy and financials, European industrials, and Japanese manufacturers — asset classes with low correlation to US tech that historically smooth out portfolio volatility.

Does This Mean VFV Is a Bad Investment?

Not necessarily. VFV has been one of the best-performing ETFs available to Canadian investors over the past 15 years. The problem is that it has gotten harder to distinguish between buying the market and betting on a few companies. Those are two very different positions.

In 2025, XEQT returned approximately 20.45% while VFV delivered 12.23% — a nearly 8-point reversal from the prior year. One year is not a trend, but it illustrates that concentration cuts both ways.

What Canadian Investors Can Actually Do

Hold VFV consciously. If you have conviction that US mega-cap tech will continue to outperform, VFV at 0.09% MER is still one of the cheapest ways to express that view. Just know what you own.

Switch to or add XEQT for global dilution. XEQT holds ~8,400 stocks across 50+ countries, which naturally reduces the Magnificent Seven impact on your portfolio.

Use VFV as a US sleeve, not a whole portfolio. Some investors pair VFV with XIC and XEF to build a globally diversified three-fund portfolio at a blended MER well below 0.10%.

Consider ZSP as an equivalent alternative. ZSP from BMO tracks the same S&P 500 index at the same 0.09% MER. For practical purposes the two are interchangeable.

Want to see how VFV compares to another ETF you hold? Use the ETF Overlap Checker to run the comparison. Curious what Canada's largest institutional funds actually hold? The Canadian Fund Tracker shows the full picture.

FAQ

Is VFV too concentrated in tech stocks? Information Technology represents roughly 32-34% of the S&P 500, with Communication Services adding another ~10%. Whether that is a problem depends on your view of US technology over your investment time horizon.

How many stocks does VFV actually hold? VFV holds approximately 500 US large-cap stocks. However, because it is market-cap weighted, the top 10 holdings represent roughly 36-40% of the fund. The bottom 250 stocks combined represent less than 15%.

Is VFV better than XEQT for a TFSA? Both are reasonable TFSA holdings for long-term investors. VFV is 100% US equities at a lower MER (0.09% vs 0.20%). XEQT is globally diversified across ~8,400 stocks. Neither avoids US withholding tax inside a TFSA. Use the Account Type Optimizer to think through the account-type question.

What is an alternative to VFV with less concentration? XEQT provides global diversification that naturally dilutes S&P 500 concentration. A three-fund portfolio (XIC + XUU + XEF) lets you control the exact weighting. For staying within US equities, there is no major Canadian-listed equal-weight S&P 500 ETF matching VFV's scale in 2026.

This is educational content, not investment advice. Always review the fund prospectus and consider your personal financial situation before investing.

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