Last year's slide in the Canadian dollar against the greenback has investors looking for ways to benefit from the U.S. dollar's rebound.
Before you rush out with your loonies to exchange them for U.S. dollars, consider: How much higher will the U.S. currency go?
A year ago, investment advisers had to persuade their Nervous Nellie clients to invest a portion of their holdings in U.S. stock markets; this year they're having to hold clients back.
There is a simpler way to diversify internationally that is more suited to long-term thinking – by investing in companies that earn much of their income outside Canada in other currencies.
Brookfield Asset Management Inc. and its subsidiaries are a prime example. Energy and resource companies are others. Even the big banks are extending their reach beyond Canada.
With Brookfield, "You get the currency thing anyway because most of the assets are held outside the country," says Paul Harris, portfolio manager at Avenue Investment Management Inc. in Toronto, which owns the stock. "It's like owning an oil company."
Not only does Brookfield trade in New York and Europe as well as Toronto, it reports its financial results – and pays dividends – in U.S. dollars.
Canadians who bought U.S. stocks or mutual funds when the dollars were at par got a bonus last year as U.S. dollar gains added to the outstanding performance of U.S markets. But one good year should not lead investors to become currency speculators. Forex is a risky game.
"You have to be brilliant to figure out which way the currency is going," says Nick Majendie, senior portfolio manager at ScotiaMcLeod in Vancouver. "Some of the best minds get it wrong."
If you have some loose American dollars kicking around in your portfolio, you could use them to buy U.S.-dollar stock. But if you'd have to buy with Canadian dollars, you'd be paying a substantial premium and hoping the loonie would fall enough – and stay down long enough – to make it worthwhile.