With the loonie once again hovering right around parity with the greenback, some investors may be tempted to do a little cross-border shopping for exchange traded funds you just can't get here at home. But, with more than 800 ETFs on offer south of the border, you might want to narrow down your options a little.
John De Goey, vice-president, Burgeonvest Bick Securities Ltd.
Parity is a good time to consider investing in U.S.-based ETFs because history indicates the loonie will drift back down to its traditional range, suggests Mr. De Goey.
"It might take a few years before you get the Canadian dollar back to 90 cents," he said. "At any rate, there is a 10-per-cent return you get in currency conversion between buying it at par and when it drops to its more traditional level."
For U.S. market exposure, he recommends U.S.-listed SPDR S&P 500 ETF with a management expense ratio (MER) at 0.09 per cent, instead of Canadian-listed iShares CDN S&P 500 ETF at 0.24 per cent. The 15-basis-point difference in the Canadian product helps pay for its currency hedge.
Similarly, he likes the cheaper U.S.-listed iShares MSCI EAFE ETF , which tracks Europe, Australasian and Far Eastern markets, instead of the Canadian-listed hedged iShares CDN MSCI EAFE ETF .
But the strategy of buying U.S.-listed ETFs would apply only to new money, he said. It's not worthwhile for investors who own hedged ETFs and have long time horizons to make the switch and incur trading costs and possible tax consequences in a non-registered retirement plan, he added.
Tyler Mordy, director of research, Hahn Investment Stewards & Co. Inc.
Mr. Mordy agrees that it's advantageous now to seek out U.S.-listed ETFs "if you are a tactical global investor."
ETFs invested in U.S. dividend-paying, large-company stocks offer a "safer place" than small-cap stocks because they are cheap on a variety of valuation measures right now, and throw off "good income," he said.
U.S.-listed WisdomTree LargeCap Dividend provides access to the sort of large U.S. multinationals he prefers.
"We made a commitment to that ETF as a tactical shift at the end of March," he said. "We got it when the Canadian dollar was around 99 cents."
But Mr. Mordy said he also believes the Canadian dollar is overvalued versus the U.S. dollar. "We are lonely Canadian dollar bears at this point."
Vikash Jain, president, archerETF Portfolio Management
Mr. Jain would prefer to see signs of a price trend emerge for the loonie over the next couple of weeks before diving into unhedged ETFs. Technical indicators suggest continued strength for the Canadian dollar, "but the strength may be ephemeral," he said.
Still, among U.S.-listed ETFs, he likes Vanguard Total Stock Market ETF , which tracks some 3,400 U.S. large-cap as well as small- and mid-cap stocks.
"A sustained U.S. recovery will benefit mid- and small-cap companies, but large-caps should also be a core U.S. equity holding," he said.
Vanguard European ETF is also on his radar screen. The loonie has gained against the euro and the British pound over the last year, too, he said. "This ETF, with about 450 large-cap companies, will benefit from an [economic]turnaround. In the meantime, it has a dividend yield of nearly 4 per cent."
More about ETFs:
The Loonie: Investor Education
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- SPDR S&P 500 ETF Trust$224.60+2.90(+1.31%)
- iShares S&P 500 Index ETF$25.77+0.30(+1.18%)
- iShares MSCI EAFE ETF$58.52+0.86(+1.49%)
- iShares MSCI EAFE Index ETF (CAD-Hedged)$23.19+0.27(+1.18%)
- WisdomTree International LargeCap Dividend Fund$43.25+0.64(+1.50%)
- Vanguard Idx Fund$116.10+1.42(+1.24%)
- Vanguard European Stock Index Fund$47.75+0.64(+1.36%)
- Updated December 6 8:00 PM -5GMT. Delayed by at least 15 minutes.