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VUAG vs VUSA: Which S&P 500 index ETF should you choose?

VUAG and VUAA are two S&P 500 index ETFs. This means that they track the performance of the largest 500 companies on the US stock market.

The key difference is that VUAG is an accumulating ETF while VUAA is a distributing ETF. This is important for your dividend payment treatment.

 

In this article, we will compare VUAG and VUSA, we’ll go over the differences in each dividend payment treatment, diversification strategy, expense ratios, and performance.

 

What is VUAG?

 

The Vanguard S&P 500 UCITS ETF (VUAG) is an S&P 500 index-tracking ETF offering. It is similar to VOO, with one important distinction: VUAG is an accumulating ETF. This means that it does not distribute dividend payments but instead reinvests them back into the ETF on your behalf.

 

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VAUG’s main objective is to generate similar overall returns as the market using the S&P 500 as its index. The ETF is inherently diversified and is generally considered safer than holding individual stocks within an index.

 

What is VUSA?

 

The Vanguard S&P 500 UCITS ETF (VUSA) is an S&P 500 index-tracking ETF offering. VUSA and VUAG track the same index, the only difference being that VUSA is a distributing ETF. This means that it distributes all dividend payments.

 

VUSA’s main objective is to generate similar overall returns as the market using the S&P 500 as its index. The ETF is inherently diversified and is generally considered safer than holding individual stocks within an index.

 

VUAG vs. VUSA Summary

 

VUAG VUSA Edge
Fund Type ETF ETF Tie
Diversification S&P 500 Index Tracking S&P 500 Index Tracking Tie
Inception Date 2019 2012 VUSA
Number of Holdings 506 506 Tie
Risk Rating Moderate Moderate Tie
Minimum Investment $1.00 $1.00 Tie
Expense Ratio 0.07% 0.07% Tie
Tax Efficiency ETFs generally are more tax-efficient ETFs generally are more tax-efficient VUAG slight edge
Tax Loss Harvesting Funds must settle and may need 1-2 days to be available for reinvestment Funds must settle and may need 1-2 days to be available for reinvestment Tie
Trading and Liquidity Daily trading during Market Hours Daily trading during Market Hours Tie
Performance 26.68% in 2023 26.67% in 2023 Tie
Dividend Yield Accumulating Distributing VUSA slight edge

 

Diversification – Tie

 

VUAG and VUAA are two ETFs that track the performance of the S&P 500 index. As a result, they have the same investment strategy and diversification.

 

  • The S&P 500 tracks the performance of the 500 largest companies traded on US stock exchanges.

 

Below is the portfolio breakdown by sector for VUAG and VUAA as of March 2024. Remember that these portfolios are not fixed and will change according to each ETF’s rebalancing schedule.

 

Industry VUAG VUSA
Information Technology 30.48% 30.48%
Health Care 12.81% 12.81%
Financials 12.67% 12.67%
Consumer Discretionary 10.46% 10.46%
Communication Services 8.85% 8.85%
Industrials 8.14% 8.14%
Consumer Staples 6.10% 6.10%
Energy 3.81% 3.81%
Materials 2.07% 2.07%
Real Estate 2.38% 2.38%
Utilities 2.23% 2.23%

 

From the table above, you can see that VUAG and VUSA have identical portfolio composition. Since these two ETFs track the performance of the same index, they invest in the same proportions. The top three industries for each ETF are information technology, healthcare, and financial services, accounting for 56% of the portfolio.

 

Likewise, we can look at each fund’s top 9 holdings to see how they differ.

 

Company VUAG VUSA
Apple Inc. 7.26% 7.26%
Microsoft Corp. 6.63% 6.63%
Amazon.com Inc. 3.47% 3.47%
NVIDIA Corp. 3.74% 3.74%
Facebook Inc. Class A 2.13% 2.13%
Alphabet Inc. Class C 1.74% 1.74%
Tesla Inc. 1.27% 1.27%
Berkshire Hathaway Inc. Class B 1.72% 1.72%
Broadcom Inc. 1.27% 1.27%
Total 29.23% 29.23%

 

From the table above, we can see the top 9 holdings within each ETF. Similar to the above, they have the same top 9 holdings. This is because they are tracking the same index. As a result, the top 9 holdings account for 29.23% of the portfolio.

 

Overall, VUAG and VUSA have the same diversification.

 

Minimum Investment – Tie

 

Both VUSA and VUAG require a minimum investment of $1.00. Since these are both ETFs, they can be traded on fractional shares, allowing for even the smallest investment. In addition, since they are both offered by Vanguard, if you already have a brokerage account for Vanguard, you can easily invest in either ETF.

 

Expense Ratio –  Tie

 

VUSA and VUAG are offered by Vanguard, which is known for having some of the lowest expense ratios in the industry. VUSA and VUAG both have an expense ratio of 0.07%.

 

Both of these ETFs offer some of the lowest expense ratios on the market, and you are unlikely to find a lower expense ratio offered by any other ETF. The Industry average ETF expense ratio is approximately 0.25%.

 

Trading and Liquidity – Tie

 

Since they are both ETFs, VUAG and VUSA have the same trading and liquidity characteristics.

 

Investors can buy and sell ETFs throughout the day at any time during market hours. This is not the case with mutual funds, which are only traded at the end of the day based on Net Asset Value (NAV).

 

ETFs’ trading flexibility doesn’t come without drawbacks, though—they typically trade at prices slightly different from their NAV. This difference is called a bid-ask spread.

 

ETFs offer an advantage to investors who trade daily or change positions frequently. Since they can trade throughout the day, whereas mutual funds, you have to wait until the day is closed.

 

Tax Efficiency – VUAG has a slight advantage

 

When comparing two different investment options, it’s essential to consider the tax implications and not only the returns they generate. The tax implications of an investment can have a significant impact on which investment generates higher after-tax returns.

 

Generally, ETFs will have a slight edge from a tax efficiency perspective. ETFs tend to distribute comparatively fewer capital gains to shareholders – these same gains are simply more challenging to manage efficiently from a mutual fund.

 

Overall, VUSA and VUAG are considered to have the same level of tax efficiency.

 

One thing to consider is that since VUAG is accumulating, you will not pay taxes on dividend payments, whereas with VUSA these will be disbursed, so you will pay taxes on these payments.

 

Tax Loss Harvesting – Tie

 

As ETFs, both VUSA and VUAG have the same rules and regulations.

 

Tax-loss harvesting is a strategy that involves selling investments at a loss to offset gains (and up to $3,000 in ordinary income). Tax-loss harvesting only matters in taxable investment accounts since you aren’t taxed on capital gains in tax-deferred accounts.

 

While this strategy can be implemented using any type of investment (stocks, ETFs, mutual funds, or other property), mutual funds have an advantage because of how they are traded.

 

When you sell an ETF, you’ll have to wait for the funds to settle before reinvesting the proceeds. This wait, commonly referred to as T+2, may be one or two days before you can access the funds.

 

If you prefer the tax-loss harvesting rules of a mutual fund, opting for a similar indexed mutual fund might be a better option.

 

Performance & Dividends – VOO slight advantage

 

The performance of an investment option is often one of the most critical aspects investors consider.

 

The table below shows the total annual returns between VUAG and VUSA.

 

Total Return by NAV
Year VUAG VUSA Delta
2023 26.68% 26.76% 0.08%
2022 -18.63% -18.72% -0.09%
2021 29.34% 29.43% 0.09%
2020 19.31% 17.63% -1.68%
2019 30.52%
2018 -5.53%
2017 21.66%
2016 11.38%
2015 0.48%
2014 15.18%

 

From the table above, you can see that while they invest in the same index, they produce slightly different results. One of the biggest differences is that VUAG started in 2019 and as a result has less performance history.

 

VUAG outperformed in two of the last four years, while VUSA outperformed in the other two. Overall, the difference in performance is marginal, and I would not give any ETF an advantage in this area.

 

Another key distinction is that VUSA distributes dividend payments, meaning it would generate a dividend payment. On the other hand, VUAG does not generate a dividend payment because the payments are reinvested into the ETF.

 

Depending on your dividend distribution preference will determine which ETF has an advantage.

 

VUAG vs VUSA: Where Should You Invest?

 

VUAG and VUSA are two very similar ETFs. They both track the performance of the S&P 500 index, which means they hold the largest 500 stocks in the US market.

 

The key similarities include Vanguard offering both ETFs. As a result, both ETFs have a very low expense ratio of 0.07%. In addition, both companies have a minimum investment of $1.00.

 

Since VUAG and VUSA are both ETFs, they also have the same trading and liquidity, tax-efficiency, and tax-loss harvesting rules.

 

In addition, both VUAG and VUSA generate similar annual returns, with the exception that VUSA has a longer performance history than VUAG, which started in 2019.

 

The key difference between whether VUAG or VUSA is the best option for you is how you want your dividend payment treatments. VUAG is an accumulating ETF, which means that no dividend payments are issued, but rather, the dividend payments are reinvested into the ETF on your behalf. VUSA, on the other hand, issues a dividend payment, which would generate a quarterly or yearly income.

 

VUSA is a better option if you want annual dividend payments. VUAG is a better option if you want to increase your holdings and avoid additional income.

 



 

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