Q: “I use non-hedged ETFs for US and international equities, which worked out well as the Canadian dollar tanked. But the loonie is now so low that I wonder if it makes sense to move to the hedged versions. My thinking that there is limited risk from the loonie falling much further, and a bigger risk from its recovery.” – B.G.
It’s hard to believe it was just three years ago that the loonie was at par with the US dollar. Since 2013 our currency has trended steadily downward, reaching a low of $0.68 USD in late January, a level not seen since 2003.
My model portfolios recommend US and international equity index funds that do not hedge their currency exposure. That means when the loonie falls in value relative to the US dollar and other foreign currencies, these funds get a boost in returns. That was particularly dramatic in 2015, when US and international equities posted only modest returns in their native currencies but netted close to 20% for Canadians on the strength of the currency appreciation.
Expecting a repeat of that performance is foolishly optimistic.