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The Canadian dollar has fallen to the 74 cent range against the U.S. dollar after topping 80 cents at the onset of the pandemic in early 2020. Despite the drop, the loonie has proven resilient against the greenback compared with other global currencies thanks to higher resource prices.JONATHAN HAYWARD/The Canadian Press

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The U.S. Federal Reserve Board’s outsized interest rate increases are pushing the U.S. dollar to new highs against other global currencies, which gives Canadian investors the opportunity to get more bang for their U.S. buck.

On the back of this greenback strength, Toronto-based Purpose Investment Partners Inc. launched a U.S. dollar exchange-traded fund (ETF) series of its $575-million Purpose Credit Opportunities Fund CROP-U-T in September.

The actively managed ETF generates income and capital gains through a mix of mostly U.S. fixed income and equities, using a variety of hedging strategies. With a yield of 5.83 per cent, it’s suited to investors and advisors looking for a steady, reliable income stream.

“This is a way for Canadians to get exposure to U.S. investments. You just pay the currency translation once,” says Greg Taylor, chief investment officer at Purpose.” It’s held in U.S. dollars, so you don’t have to worry about hedging costs.”

He says the decision to launch the U.S. dollar series is not a call on the direction in which currencies are heading, but a response to the growing number of Canadian investors who want to venture beyond the confines of Canadian equities without sacrificing returns to a fluctuating loonie.

“There are a lot of investors who just want some diversification in their portfolios away from just holding everything in Canadian dollars,” Mr. Taylor says.

The Canadian dollar has fallen to the 75 cent range against the U.S. dollar after topping 80 cents at the onset of the pandemic in early 2020. Despite the drop, the loonie has proven resilient against the greenback compared with other global currencies thanks to higher resource prices. For example, over the past year, the U.S. dollar has climbed from 86 cents versus the euro to above par.

“We have seen some wild moves in currencies this year and that’s a good reminder for people in case something dire does happen to the Canadian dollar,” Mr. Taylor adds.

Is it the right time to buy U.S. dollars?

Darren Sissons, portfolio manager at Campbell Lee and Ross Investment Management Inc. in Toronto, makes calls on currencies in his client portfolios. Specifically, he focuses on foreign markets and exploits currency fluctuations to boost overall returns.

“We actively use currencies as a strategy. We push capital from weakness to strength and strength to weakness,” he says.

Mr. Sissons says he questions the timing of Canadians using Canadian dollars to buy U.S. dollars right now. He believes the strong greenback will eventually lead the U.S. into recession.

“The hit that the U.S. economy is going to take because of currency is huge,” he says.

Mr. Sissons’ advice to Canadian investors who want to build U.S. dollar portfolios is to remain unhedged while the loonie remains low, and stock up on U.S. dollars when the loonie strengthens in comparison.

“At that point, you would want to buy high-quality U.S. names and you would want to buy them when they are on sale,” he says. “You can use the dividend income to provide a source of [U.S.] capital.”

He says building a U.S. dollar portfolio should be done over a long period of time and take the circumstances of the individual investor into account.

“You do it over multiple periods. If you just bought a U.S. vacation property, now is not the time to be buying U.S. dollars for investments,” Mr. Sissons says.

Currency strategy should hedge against risk

As an example of the weight currencies can wield in global investment portfolios, money managers at CI Global Asset Management (GAM) in Toronto have their own, in-house foreign exchange specialist for client accounts – an advisor for advisors.

“The foreign exchange returns could dwarf the actual returns achieved in a particular investment vehicle,” says Lorne Gavsie, vice president and portfolio manager, foreign exchange, at CI GAM.

“Investors are not only buying foreign securities, they’re also buying foreign currencies.”

That doesn’t mean they fully accept 100 per cent of the volatility that can come with owning foreign securities, he adds.

Mr. Gavsie says the primary function of a currency strategy is to hedge against risk.

“I would be more inclined to think about it over a medium to long term as opposed to making a speculative call right here and now over where it’s going to be in the next month or three months,” he says.

He admits, however, timing can play a role.

“We’ll set very specific strategies and may tactically go slightly above or slightly below where we think that strategic hedge level should be, but we’re never making big bets that would overshadow what the purpose of that investment vehicle is intended to do,” he adds.

Investors should not be making excessive calls on currency in isolation, he says. It should be part of a strategy.

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