Why VUSA Underperforms VOO — 3 Key Differences Every UK Investor Should Know
If you're investing in the S&P 500 through ETFs, chances are you've come across two popular Vanguard options: VOO (US-domiciled) and VUSA (UCITS-compliant, Ireland-domiciled).
At first glance, they both track the same index, so you'd expect them to perform similarly. But surprisingly, VUSA often underperforms VOO — sometimes by a noticeable margin.
Why is that?
In this post, we’ll break down the three core reasons for this divergence — especially important if you're investing from the UK or Europe.
1. Currency Impact — GBP vs. USD Pricing
The most significant factor behind the performance gap is currency exchange.
- VOO is priced in USD
- VUSA is priced in GBP
When the British pound strengthens against the US dollar, the GBP value of US assets falls — and so does VUSA’s price, even if the S&P 500 itself doesn’t move.
Conversely, when the pound weakens, VUSA appears to perform better in GBP terms.
Why it matters
On performance charts:
- VUSA often lags behind VOO when GBP is strong.
- The gap narrows when GBP weakens.
This explains why VUSA’s performance doesn't always mirror that of VOO, despite tracking the same index.
Hedged Alternative: GSPX
To avoid currency volatility, consider GSPX, a GBP-hedged S&P 500 ETF. It neutralises the effect of GBP/USD exchange rate movements using forward contracts. That means returns more closely reflect the actual performance of the S&P 500 in local currency terms — at the cost of slightly higher fees.
2. Dividend Withholding Tax Differences
Both ETFs hold the same US companies, which pay dividends — but the tax treatment differs:
| ETF | Domicile | Tax on US Dividends |
|---|---|---|
| VOO | United States | Receives 100% (before investor-level tax) |
| VUSA | Ireland (UCITS) | Receives only 85% due to 15% US withholding tax |
What this means
- VOO collects full dividends and passes them on to investors.
- VUSA collects reduced dividends (due to US-Ireland tax treaty) before distribution.
- The lower dividend inflow reduces VUSA’s NAV, resulting in slightly weaker long-term growth.
Even though both ETFs pay out dividends quarterly, the timing gap and reduced gross income cause temporary and sometimes persistent performance divergence.
3. Fund Fees — Small Percentages, Long-Term Effects
ETF expense ratios may seem negligible, but they add up over time:
| ETF | Expense Ratio |
|---|---|
| VOO | 0.03% |
| VUSA | 0.07% |
| GSPX | 0.10% |
Why are UCITS ETFs more expensive?
- They must comply with EU/UK regulatory requirements
- They often support multiple currencies and exchanges
- They handle dividend withholding tax internally
- In the case of GSPX, currency hedging incurs extra cost
Over a 10-year period, these differences can compound to a 0.5–0.7% performance gap.
Case Study: When to Avoid VUSA and Prefer GSPX
Scenario: You believe the British pound will strengthen significantly against the US dollar over the next 2–3 years.
What happens if you choose VUSA?
- As GBP strengthens, the GBP value of VUSA's USD-denominated assets will decrease, even if the S&P 500 index remains flat.
- Your ETF could lose value purely due to currency movement, offsetting stock gains.
Why GSPX is better in this case:
- GSPX is GBP-hedged, meaning your returns track the S&P 500 index without being impacted by the GBP/USD exchange rate.
- Even if the pound strengthens, your gains (or losses) come from market performance, not FX volatility.
Result: By choosing GSPX, you isolate your investment risk to the performance of the S&P 500, not currency speculation.
Conclusion: Choose Based on Residency, Currency View, and Simplicity
While VOO may offer the best raw performance, most UK retail investors cannot access it directly due to regulations.
That leaves VUSA and GSPX as practical options — with the choice depending on your:
- View on currency movements
- Preference for dividend income vs. capital growth
- Sensitivity to fund fees
TL;DR
| Factor | VOO (US) | VUSA (UCITS) | GSPX (GBP-hedged) |
|---|---|---|---|
| Currency | USD | GBP | GBP |
| Dividend Tax | Full (100%) | Withheld (85%) | Withheld (85%) |
| Expense Ratio | 0.03% | 0.07% | 0.10% |
| UK Retail Availability | No | Yes | Yes |
| Currency Hedging | No | No | Yes |
| Best Use Case | When USD is stable or strengthening | When GBP is weakening | When GBP is strengthening |