Horizons BetaPro has introduced a new Exchange-Traded Fund that holds US Dollar Cash and Cash Equivalents and trades on the TSX under the ticker symbol DLR. The Management Fee for the ETF is 0.45%. The ETF is priced to reflect the value in Canadian Dollars of $10 US less fees and expenses. For instance, DLR closing price as of 11/04/2011 is $9.57. At the same time, 1 US Dollar fetched approx. $0.9561 (Canadian).
The backgrounder explains how the ETF provides Canadian retail investors a lower-cost method for speculating in the fluctuation of the US Dollar. Compared to exchanging currency at a local branch or a discount broker that might charge anywhere between 1.5% to 2.5% for each conversion, buying and selling the ETF would cost two trading commissions plus bid-ask spreads plus ETF fees. BetaPro estimated that a retail investor could save as much as $255 on converting $10,000 from CAD to USD and back again.
I have little interest in speculating in currency markets but I do wish Horizons BetaPro introduces a US$ version of the US Dollar Currency ETF. Such a move would provide a perfect method for long-term, buy-and-hold Canadian investors who want to convert Canadian Dollars into US Dollars prior to investing in a low-cost ETF trading on an US Exchange. Currently, investors who want to save on the steep currency conversion charges turn to the Norbert Gambit. But implementing the Gambit involves taking on security risk because the discount broker might balk on journalling shares and selling it immediately or an investor might even be on hold while the markets move sharply. A US Dollar Currency ETF will eliminate this risk. A Canadian investor wanting to convert her loonies into greenbacks will buy DLR, journal it over to the US Dollar account and sell DLR.U. Even if the entire process took a week, the conversion rate would have been locked in at the initial purchase. The conversion would cost just two trading commissions and 20 basis points or so in bid-ask spreads (2 cents per share). Recently, BetaPro introduced a US Dollar denominated S&P/TSX 60 ETF (HXT.U) on the TSX. I hope that they will do the same for the US Dollar Currency ETF.
You can read Larry MacDonald’s take on the US Dollar Currency ETF here.