Comments on: Performance of the Currency-Neutral MSCI EAFE Index Fund

By: Currency-Hedged Funds Underperformed in 2010 | MoneySense

Currency-Hedged Funds Underperformed in 2010 | MoneySense — Thu, 06 Jan 2011 14:47:45 +0000

[...] Performance of the Currency-Neutral MSCI EAFE Index Fund [...]

By: Why currency-hedged funds have large tracking errors | MoneySense

Why currency-hedged funds have large tracking errors | MoneySense — Wed, 27 Oct 2010 13:45:34 +0000

[...] Performance of the Currency-Neutral MSCI EAFE Index Fund [...]

By: The Costs of Currency Hedging | Canadian Capitalist

The Costs of Currency Hedging | Canadian Capitalist — Wed, 27 Oct 2010 02:15:12 +0000

[...] currency-hedged EAFE Index Fund (XIN) also exhibits large tracking errors: Performance of the Currency-Neutral MSCI EAFE Index Fund Post a [...]

By: Glenn

Glenn — Tue, 12 Jan 2010 04:15:05 +0000

Another way to look at the math based on the numbers above, if you invested 1 CAD in both EFA and XIN, after the 4 year period, you would have 0.943 CAD if you invested in EFA and 0.832 CAD if you invested in XIN. It looks like XIN removes almost all of the effect of exchange rate variation over 1 year and some of it over 4 years. Comparing it to XSP VS IVV, XSP appears to remove almost no effects of exchange rate variation over 4 years (passes it on to the investor). It’s probably best to buy IVV or EFA if you are planning to hold it longer than 1 or 2 years.

By: alvanson

alvanson — Thu, 07 Jan 2010 23:50:17 +0000

Why pick a 4 year period? Running the same numbers (using TD e-Series funds, though) over a 3 year period shows mixed results: US Currency Neutral does better than the non-hedged version whereas the International Currency Neutral does worse than the non-hedged version.

However, this discussion is irrelevant. I don’t buy into the assumption that currency fluctuations even out in the long term. Therefore, currency neutral funds are useful as they hedge out this long-term risk. I agree, however, that the hedging is likely more expensive than it has to be.

Slightly off topic: I’m not sure where I recall people complaining about emerging market funds that hedge the C$->US$ risk. While at first glance this seems to be a silly thing to do, keep in mind that most LARGE emerging market companies (the ones the emerging market funds hold) do a lot of business in the US in US$. Therefore, there still exists a significant US$ risk despite the company reporting in local currencies.

By: Smiley

Smiley — Thu, 07 Jan 2010 22:40:23 +0000

EDIT. – doing three things at once ! probably three to many !

I just set up my couch potato 1 month ago (XIN, XBB, XSP, XIC) I did this AS AN ETF as I would be making MORE than once yearly contributions – inside my TFSA – with this in mind. What would be a better alternate long term to XIN?

By: Smiley

Smiley — Thu, 07 Jan 2010 22:18:34 +0000

I just set up my couch potato 1 month ago (XIN, XBB, XSP, XIC) I did this over the ETF as I would be making once yearly contributions inside my TFSA – with this in mind. What would be a better alternate long term to XIN?

By: Alan

Alan — Thu, 07 Jan 2010 18:17:02 +0000

CC, were you a superb detective in your former life? !!!

Excellent!

By: Sampson

Sampson — Thu, 07 Jan 2010 17:13:44 +0000

This has been a great series CC. Thanks for doing the hard work.

By: Michael James

Michael James — Thu, 07 Jan 2010 04:57:40 +0000

It seems that comparing tracking error of index ETFs to their MERs is a good way to see if there are any hidden drags on returns.