[LateStudent]

in the thread www.canadianmoneyforum.com/showthread.php?p=5009 (post #4) Donkey asked the question "I'm also not clear on the logistics/pros/cons of buying ETF's on the TSX vs other exchanges? Should I just be considering TSX-listed ETF's?"


Me too!

I'm also looking at converting my current Altamira mutual fund accounts to an ETF portfolio, and am wondering if I should care whether I buy them from Canadian or US stock exchanges, and am unsure how it will eventually work (I expect to set up an account with Questrade, but haven't had any experience with brokerages, so I'm not sure how I will go from $Cdn in my bank account to purchases of US ETFs presumably in US$ and whether there are complications and currency exchange losses, etc). Also, I think there's considerations like currency fluctuation risk, and tax treatment of dividends, but am very unclear on these concepts.

Anybody have comments, or links to articles on this?

Thanks!

 

[CanadianCapitalist]

I've written about currency issues many times on the blog. Typically, you'll have to convert CAD->USD to buy ETFs trading on US exchanges. These currency conversion will run about 1% at most discount brokers. Assuming you are a long-term buy-and-hold type investor, this initial hit might well be worth it in MER savings because many of Vanguard ETFs tend to be significantly cheaper.

Currency hedging isn't without its share of problems. The tracking error of currency-hedged funds is quite atrocious. And given that the benefits of hedging are debatable and the costs are certain, IMO, hedging is simply not worth the trouble. Check out the archives and I've covered this topic in multiple posts:

http://www.canadiancapitalist.com/sitemap

I'll be happy to field follow-up questions.

 

[CuriousReader]

I prefer to keep things simple and avoid currency conversion on the broker. I use Questrade, and they keep track of the balances of USD and CAD separately (they also showed the "total balance" which mean convert one currency to the other, but I only pay attention to the separated balance)

And I made sure that I transfer in CAD if I want to trade in TSX, and I send in USD draft when I want to trade in the US. All this to avoid any "uncontrolled" currency conversion rate from the broker, since I'll be the own who's doing the currency conversion myself in my bank

 

[leslie]

Brokers handle the US currency in different ways.

Most allow you to open separate sub-accounts. So you would have an RRSP account and a USdollar account and a normal Cdndollar account (either allowing you to go into an overdraft position (margin) or not (cash)).

When you move Loonies into/outof the US account they will charge you a fee. In my experience it will be more like 1.5% than 1.0% mentioned above. So you do NOT want to be moving things back and forth.

If you buy a stock that trades on a US exchange from the US dollar account everything is seamless. Your broker's statements will show the value of that security from then on in US dollars.

If you buy the same stock from you Cdn account they will do an immediate conversion and include that same 1.5% change in the transaction slip. So make sure all US denominated transactions happen from your US account. This is what happens within RRSP accounts at all brokers except one.

The second way brokers deal with US currency is to keep all your holdings in one account that includes US securities and US dollars as well as Cdn stuff. When you enter a buy/sell order you specify whether you want the deal done with your existing US dollars or Loonies. To avoid the exchange fee you would specify US dollars when buying from a US exchange.

Dividends from US companies are taxed at the full rate like interest income. Dividends from Cdn companies get the dividend treatment even if you buy their stock from a US exchange (many are dual listed).

The valuations used for calculating taxable capital gains is determined by finding the Loonie equivalent of the transaction done in US dollars at the settlement date. This hold true whether there is an actual FX trasaction or not.

 

[JC NewGrad]

Hi,

This relates to a question I posted earlier on MDJ, and I'm hoping someone who has had experience with funding Questrade accounts can answer it here.

I realize that having US funds in my Questrade account is best for buying US stock. I also realize that Questrade has posted several ways to fund accounts on their website -- but I'm not sure if they're upfront about what is the best way (for the account holder) to fund the account. I'm sure they want their fees.

So what is the best way to fund the account, assuming I only have a Cdn. dollar bank account to transfer from?

Questrade says they have a 0.5% exchange fee within RRSPs, which doesn't seem that bad, but would exchanging at my bank be better?

 

[CuriousReader]

So what is the best way to fund the account, assuming I only have a Cdn. dollar bank account to transfer from?

Why dont you convert your CAD to USD yourself and make a USD bankdraft (I know there are fees associated with bankdraft, my advantage is that, bankdrafts are free for me, even for USD ones)

 

[CanadianCapitalist]

So what is the best way to fund the account, assuming I only have a Cdn. dollar bank account to transfer from?

Questrade says they have a 0.5% exchange fee within RRSPs, which doesn't seem that bad, but would exchanging at my bank be better?

You probably won't get the best exchange rate at the bank. I don't have a Questrade account anymore but IMO, 0.5% is an excellent exchange fee.

I wrote on the blog about funding your Questrade account very quickly. Not sure if it works still but worth a check anyway.

http://www.canadiancapitalist.com/how-to-quickly-fund-your-questrade-account-with-us-dollars/