If your S&P 500 index fund
used currency hedging, however, your return would have been much closer to the one enjoyed by American investors.
This would have boosted your returns — but not if your funds
used currency hedging.
The original Global Couch Potato portfolio
used currency hedging in its US and international equity funds.
Four months ago, you couldn't buy a Canadian - listed S&P 500 index ETF that did not
use currency hedging.
Funds that
use currency hedging are marked with an asterisk (*).
All three brokerages offer the iShares International Fundamental (CIE) which does not
use currency hedging and would be a good choice as a core holding.
Expressed in Canadian dollar terms (i.e., including all currency shift effects and
using no currency hedging)
The fund
uses currency hedging to eliminate exposure to the US dollar.
Finally — and most important — it does not
use currency hedging, which makes it almost unique in Canada.
Bottom line: In my view, UXM is the best choice for dividend - oriented investors who want an ETF that trades in Canadian dollars and
uses currency hedging.
However, RBC decided to continue with the old structure in the US and international index funds that
use currency hedging, because futures contracts provide an easy way to manage the foreign exchange risk.
CGL is unique among gold ETFs in that
it uses currency hedging.
If a fund
uses currency hedging, however, you can expect the same return as the underlying stocks, regardless of the currency fluctuations.
Several of the Advantaged ETFs also
use currency hedging, which adds yet another expense that doesn't show up in the MER.
I'm not sure why, but US - listed ETFs tend not to
use currency hedging for international equities.
Not only have US stocks significantly outpaced Canada and the rest of the world (albeit with low returns by historical standards), but the US dollar appreciated more than 1 % annually, which boosted returns for Canadian investors who did not
use currency hedging.
I offered a couple of my own: an international equity ETF that doesn't
use currency hedging, and an international bond ETF.
Interestingly, none of these ETFs
use currency hedging, since doing so would introduce a new source of volatility and completely change the profile of the funds.
By
using the currency hedged approach, you can also keep a bullish view on the U.S. dollar relative to other currencies.
The Canada Pension Plan, for example, holds billions in foreign assets and does not
use currency hedging.
If moves in the exchange rate are large or swift, funds
using currency hedging may not track their indexes closely.
Given that by hedging you are essentially paying for insurance to cover for unknowable future currency movement, I had previously decided against
using currency hedged funds.
If you are worried about an appreciating Canadian dollar you could choose an international equity fund that
use currency hedging, such as the Vanguard FTSE Developed ex North America CAD - hedged (VEF).
The differences are that CUD trades in Canadian dollars and
uses currency hedging.
The one gaping hole in the Canadian market is a broad - based, low - cost international equity ETF that does not
use currency hedging.
Both iShares and Vanguard have ETFs tracking this index, and BMO has one that tracks a similar Dow Jones benchmark, but all three funds
use currency hedging.
The ETFs have management fees of just 0.30 % and 0.35 %, respectively, and neither
uses currency hedging.
So for 2009 it made sense to
use currency hedging.
These latter two funds
use currency hedging, which is essential for foreign bonds.
However, no Canadian - listed ETF tracks the MSCI EAFE Index without
using currency hedging, so VDU is currently the best substitute.
Not exact matches
The four conglomerates originated in different sectors, but their underlying business model is the same: cultivate powerful allies in the Communist Party;
use those relationships to win regulatory and property concessions; gather investment from friends, family and other proxies of party elites into a murky, unregulated private holding company; borrow heavily from state - owed banks and other sources to finance prodigious growth plans; invest as aggressively as possible in stock and property overseas as a
hedge against slower growth in China and the risk of a weaker Chinese
currency.
Currency risk in a carry trade is seldom hedged, because hedging would either impose an additional cost, or negate the positive interest rate differential if currency forwards a
Currency risk in a carry trade is seldom
hedged, because
hedging would either impose an additional cost, or negate the positive interest rate differential if
currency forwards a
currency forwards are
used.
«NASDAQ ®, NASDAQ OMX ®, NASDAQ - 100 ®, NASDAQ - 100
Currency Hedged CAD IndexSM are trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as «NASDAQ OMX») and have been licensed for
use by BlackRock Institutional Trust Company, N.A. BlackRock Institutional Trust Company, N.A. has sublicensed the
use of the trademark to BlackRock Asset Management Canada Limited.
[10] The survey separately identifies OTC derivatives that can be
used to
hedge FX risk (such as forwards, swaps and options) and OTC derivatives that can be
used to
hedge interest rate risk (such as single -
currency fixed for floating rate swaps).
In contrast, the banking sector had a net foreign
currency liability position before taking into account the
use of derivatives for
hedging purposes and a net foreign
currency asset position of close to zero after accounting for the
use of
hedging derivatives.
Overall, the government sector is reported to have
hedged about 70 per cent of its foreign
currency asset exposure
using derivatives.
As at the end of March 2013, international investment position (IIP) data indicated that Australian entities overall had a net foreign
currency asset position equivalent to 27 per cent of GDP before taking into account the
use of derivatives for
hedging purposes (ABS 2013a).
The general government sector — which consists of national, state and local governments — had a net foreign
currency asset position equivalent to around 3 per cent of GDP as at the end of March 2013, before taking into account the
use of derivatives for
hedging purposes (Table 2).
After accounting for the
use of
hedging derivatives, the FCE survey indicates that the overall net foreign
currency asset position of other financial corporations was equivalent to 16 per cent of GDP, with a
hedging ratio of around 35 per cent for foreign
currency assets and 60 per cent for foreign
currency liabilities (Table 1).
If the answer is yes, then
using traditional fully
hedged exchange traded funds (ETFs) may be the right tool for targeting specific short - term opportunities or seeking to take
currency entirely out of the equation.
Currently, we're invested in
currency -
hedged ETFs as a way to
hedge some of our emerging market exposure, and we've
used them in the past as a way to
hedge our European equity exposure from a falling euro.
Finally, I suspect many investors will
use these
hedged international stock funds out of a belief that they know how the dollar will do against
currencies like the euro.
When GEM is in bonds, investors would
use either their local country's aggregate bond index or a
currency -
hedged version of the US Aggregate Bond Index.
«GEM (Local)» is when foreign investors trade permanently on their local stock exchange
using currency -
hedged ETFs for both equity and bond trades.
As usual, most offshore issuance was denominated in foreign
currencies, with companies typically
using swap markets to
hedge the proceeds back to Australian dollars.
The iShares
Currency Hedged ETF's
use of derivatives may reduce the funds» returns and / or increase volatility and subject the funds to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation.
In February, Mexico's central bank launched a US$ 20 billion
currency hedging program — broadly similar to a policy
used in 2015 by Brazilian policymakers to stem a fall in the Brazilian real — which had the advantage of providing support for the peso without draining the country's foreign - exchange reserves.
To this,
currency hedge funds that focus on CAD to USD usually
use advanced strategies and algorithms to follow the movements of
currencies with significant trading volumes.
Most offshore issuance by Australian borrowers in the September quarter was denominated in foreign
currencies (with companies typically
using swap markets to
hedge the proceeds back to Australian dollars).
«For my
hedge fund that invests in digital
currencies like bitcoin and Ethereum, I
use Genesis Trading.»