Comments on: Performance of Currency-Neutral S&P 500 Index Funds

By: Comparing Currency-Hedged and Unhedged Holdings | Canadian Capitalist

Comparing Currency-Hedged and Unhedged Holdings | Canadian Capitalist — Mon, 16 Jan 2012 07:43:45 +0000

[...] CAD-Hedged ETF (TSX: XSP) to 1.30% for the iShares MSCI EAFE CAD-Hedged ETF (TSX: XIN) (See posts Performance of Currency-Neutral S&P 500 Index Funds and Performance of Currency-Neutral MSCI EAFE Index [...]

By: Canadian Capitalist

Canadian Capitalist — Mon, 16 Jan 2012 06:18:29 +0000

@Cal: Excellent idea. We could make some assumptions and see who comes out ahead under various scenarios. We could assume currency conversion costs of 1.5% each way, annualized stock market returns of 7%, hedging penalty of 1% and work out who comes out ahead for (1) US dollar remains the same. (2) US dollar appreciates by 25%. (3) US dollar depreciates by 25%.

By: Canadian Capitalist

Canadian Capitalist — Mon, 16 Jan 2012 06:05:23 +0000

@Sampson: It would be very difficult to make that determination. Even if we had currency unhedged foreign ETFs listed in Canada, we would also need to include Canadians holding US ETFs, a data point that may be impossible to obtain.

By: - My Own Advisor

- My Own Advisor — Fri, 13 Jan 2012 01:14:30 +0000

[...] Canadian Capitalist shared the performance of currency neutral S&P 500 index funds. CC looks at XSP and IVV in particular, over a few years, whereby “the returns in XSP trailed that of IVV by an annualized rate of 2.33%.” Read more of CC’s analysis by clicking the link above. [...]

By: Sampson

Sampson — Wed, 11 Jan 2012 14:18:27 +0000

I wonder what products the majority of Canadian investors are using, hedged vs. un-hedged. This could be a simple explanation for their choice of releasing only hedged products.

By: Cal

Cal — Tue, 10 Jan 2012 16:37:16 +0000

Great post, perhaps you could do a follow up post in the future, showing how the differences would affect an investor with $10,000 Cdn to invest, simply putting it into XSP, vs converting to USD, buying IVV, then 25 years later cashing out and converting back to CDN dollars. I would be willing to bet that you would still come out ahead even with conversion fees……

By: Canadian Capitalist

Canadian Capitalist — Mon, 09 Jan 2012 11:00:53 +0000

@B.C. Doc: I’m not entirely sure why Vanguard decided on currency-neutral ETFs for the first batch of ETFs. Like you, I’m hoping that ETFs without currency hedging will be introduced soon.

The only issue I see with US-listed ETFs is the trouble with US Estate Taxes. Otherwise, I wouldn’t even bother with Canadian-listed foreign ETFs since there are ways to do currency exchange for nominal cost these days.

By: B.C. Doc

B.C. Doc — Mon, 09 Jan 2012 06:54:23 +0000

@CC: Thanks for the update on the performance of these hedged ETFs. I had to chuckle coming across my above post from January 2010. RBC-DI now allows USD holdings in its RRSP accounts (thank you RBC) but not its RESP accounts (grumble, grumble…). And the Loonie has crossed parity and beyond before falling back some.

On my wish list for the next two years: Vanguard Canada ETFs that give international exposure (similar to VTI and VEU) without currency hedging and with MERs equivalent to the US version. Hopefully some of the folks from Vangaurd Canada are reading your blog CC!

By: Horizons BetaPro Introduces S&P 500 Index (C$ Hedged) ETF (HXS) | Canadian Capitalist

Thu, 02 Dec 2010 15:06:57 +0000

[...] While at first glance, it appears that holding HXS will cost roughly twice the Management Fee of 24 basis points charged by the iShares S&P 500 C$ Hedged ETF (XSP), investors should keep in mind that HXS avoids two huge problems with XSP. First, an investor holding XSP in a registered account will incur a 15% withholding tax hit. Assuming a 2% dividend yield, the withholding tax will mean the investor has incurred a roughly 30 basis points expense. If an investor is in the top tax bracket and holds XSP in a taxable account, she will incur an annual income tax hit of roughly 1% (assuming 50% tax rate on a 2% dividend yield). In both these cases, investors should consider holding HXS. Second, by virtue of a the total return swap, HXS will track the S&P 500 (C$ hedged) Index pretty closely. XSP, on the other hand, has a horrendous record when it comes to tracking the index. [...]

By: » RRSP idea: high-yield bond ETFs? Canadian Business Blogs | Advice on Investment in Canada, Stock Market, Small Businesses Opportunities

Mon, 12 Apr 2010 21:13:03 +0000

[...] Nevertheless, the cost of holding currency-hedged ETFs are not always contained within their annual management expense ratios (0.6% for XHY). Tracking errors can be noteworthy as Canadian Capitalist has pointed out. [...]