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Discussion Starter · #1 ·
Hi,

A large part of my portfolio consists of stocks that trade on the NYSE. Let's say I don't want to sell them but would like to get some protection in case USD declines (I wanted to do this when USD was at 1.4 but never found time to look into it). How would you go about it?

I am asking mainly out of interest because soon I will be moving towards a couch potato strategy (so there are things like XSP).

P.S. I am somewhat familiar with futures but I always thought it's mainly for institutional investing.
 

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Journal to CAD versions if possible for dual-listed tickers?
like RY -> RY when USDCAD was high


Otherwise I can't think of any ways without selling
maybe options? but not sure how
 

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Journal to CAD versions if possible for dual-listed tickers?
like RY -> RY when USDCAD was high


Otherwise I can't think of any ways without selling
maybe options? but not sure how
This would make exactly zero difference because the underlying value of the stock stays the same.

For a similar reason trying to hedge currency for stocks is a waste of time. May help in the short run but long term it will be just extra cost.
 

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Discussion Starter · #4 ·
This would make exactly zero difference because the underlying value of the stock stays the same.

For a similar reason trying to hedge currency for stocks is a waste of time. May help in the short run but long term it will be just extra cost.
I agree that doing this for a dual-listed stock won't make a difference. But I was thinking about doing this for the purpose of "re-balancing". Let's say you own the S&P without the hedge and suddenly USD goes up 30% relative to CAD. Wouldn't moving to XSP make sense? Otherwise if the CAD recovers even if S&P does well you may end up returning nothing because of the rising CAD. I realize that this is speculating but presumably since I was willing to convert to USD and buy those companies at a certain level and suddenly it's way off wouldn't it be beneficial to "lock in" the fx gains?
 

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Journal to CAD versions if possible for dual-listed tickers?
like RY -> RY when USDCAD was high

from time to time we do see cmffers with this idea ...

alas it's not quite the right idea. Canadian interlisteds always have exactly the same value in both markets, adjusting for the spot FX rate. Arbs keep share prices picked to the bone in both markets. RY in new york will always equal RY in toronto, converted at spot.

(aside to sanioca) FXC is a USD/CAD ETF that can hedge your US securities. Alas its options only go out to september 2016 & their put premiums are costly.
 

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Hi,

A large part of my portfolio consists of stocks that trade on the NYSE. Let's say I don't want to sell them but would like to get some protection in case USD declines (I wanted to do this when USD was at 1.4 but never found time to look into it). How would you go about it?

I am asking mainly out of interest because soon I will be moving towards a couch potato strategy (so there are things like XSP).

P.S. I am somewhat familiar with futures but I always thought it's mainly for institutional investing.
There is a cost to hedging and it is imprecise. If you're going to do Couch Potato, in the long term (e.g. 20 year horizon) it will be a constant small drag on your holdings kind of like a MER. The blog at http://canadiancouchpotato.com/ has some previous articles on currency hedging.

I see currency hedging only useful for short term (less than 2 yr horizon) investments and spending.
 

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from time to time we do see cmffers with this idea ...

alas it's not quite the right idea. Canadian interlisteds always have exactly the same value in both markets, adjusting for the spot FX rate. Arbs keep share prices picked to the bone in both markets. RY in new york will always equal RY in toronto, converted at spot.

(aside to sanioca) FXC is a USD/CAD ETF that can hedge your US securities. Alas its options only go out to september 2016 & their put premiums are costly.
That's true...I guess I was thinking more in line for N.G. instead for converting USD to CAD (i.e. locking in USDCAD gains) when you sell in TSX, which in turn "hedge against further USD decline", ha

Like what I did for DLR.U->DLR and sold around $14, whew... now it's only C$12.6
 

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Like what I did for DLR.U->DLR and sold around $14, whew... now it's only C$12.6

the DLRs are unique & atypical in that only DLR.U is pegged. A party holding CAD & anticipating a rise in USD - not really the situation at present - could buy an inventory of DLR to lock in his bet. Then if & when the greenback really did rise, he could sell DLR.U & collect his profit.

parties cannot travel in the opposite direction. A party holding USD who buys DLR.U will be fully exposed to currency fluctuation until he manages to get rid of his DLR.U.
 

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Hi,

A large part of my portfolio consists of stocks that trade on the NYSE. Let's say I don't want to sell them but would like to get some protection in case USD declines.... How would you go about it?

...
Why do people always want to have their cake and eat it too? "I want to buy foreign stocks because (people say) it outperforms TSE! ... Geez, now I'm exposed to currency risk! How do I avoid that?"

If you can't stand the heat, get out of the kitchen! Sell your US stock and buy a Currency Neutral US Index fund.
 

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a strong canadian dollar is good for your USD denominated stocks. it will make them rise faster then the canadian dollar denominated ones.
dont buy hedged etfs. its proven they dont work and its just a fancy way of charging you more fees. do some googling on it.
 

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a strong canadian dollar is good for your USD denominated stocks. it will make them rise faster then the canadian dollar denominated ones.
I think you have that backwards. Let's say today $1 CAD = $.80 USD. I have Apple stock which is $80/share USD. So I have $100 CAD. Right? Now the CAD rises and $1 CAD = $1 USD. Now my Apple stock is only worth $80 CAD instead of $100 CAD.
 

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I think you have that backwards. Let's say today $1 CAD = $.80 USD. I have Apple stock which is $80/share USD. So I have $100 CAD. Right? Now the CAD rises and $1 CAD = $1 USD. Now my Apple stock is only worth $80 CAD instead of $100 CAD.
yes you are right but for owning something that is canadian but is dual listed on the NYSE like BCE or RY owning the US$ denominated stock will be better then the canadian dollar is gaining strength vs the USD/
 

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Discussion Starter · #14 ·
Why do people always want to have their cake and eat it too? "I want to buy foreign stocks because (people say) it outperforms TSE! ... Geez, now I'm exposed to currency risk! How do I avoid that?"

If you can't stand the heat, get out of the kitchen! Sell your US stock and buy a Currency Neutral US Index fund.
I am glad you have me all figured out OhGreatChef. Also glad you're not too full of yourself.
 

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Discussion Starter · #15 ·
There is a cost to hedging and it is imprecise. If you're going to do Couch Potato, in the long term (e.g. 20 year horizon) it will be a constant small drag on your holdings kind of like a MER. The blog at http://canadiancouchpotato.com/ has some previous articles on currency hedging.

I see currency hedging only useful for short term (less than 2 yr horizon) investments and spending.
Thanks I will check it out.

I agree about the long term effects. The meteoric decline of CAD makes my returns look great but I do see a possibility that it could reverse (which it did already - from 1.45 CAD/USD to 1.27). To me this feels similar to re-balancing.
 

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My view is a little different. I'm afraid to have all my eggs in the CAD basket because so much of what we need to buy is imported. I therefore feel more secure if some of my holdings are valued in USD. I hold VTI in my US account.
 

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dont buy hedged etfs.
I also don't like hedged ETF and never buy it, but it's an option if OP wants it :)
I hold about 34-40% equities and it make portfolio more balanced, yes , it doesn't go too much up when markets are sharply up and CAD$ raises, on the other hand - it's kinda hedge when markets are sharply down when usually CAD$ going down
 

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The meteoric decline of CAD makes my returns look great but I do see a possibility that it could reverse (which it did already - from 1.45 CAD/USD to 1.27). To me this feels similar to re-balancing.
It is exactly an issue of rebalancing. If you ride your $US from Can par to $0.68 and back to par again one day, what has the $US done for you other than making you feel good? It is only a hedge if you sell some at a favorable price when the opportunity presents, otherwise it is just hand holding.

Hboy43
 

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Discussion Starter · #19 ·
It is exactly an issue of rebalancing. If you ride your $US from Can par to $0.68 and back to par again one day, what has the $US done for you other than making you feel good? It is only a hedge if you sell some at a favorable price when the opportunity presents, otherwise it is just hand holding.

Hboy43
Right - and that's why I asked in the first place. The obvious thing to do would be to sell some US holdings and buy Canadian. But what if I don't necessarily want to sell the US companies I hold but do want to balance out the wild swings that just happened.
 

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Right - and that's why I asked in the first place. The obvious thing to do would be to sell some US holdings and buy Canadian. But what if I don't necessarily want to sell the US companies I hold but do want to balance out the wild swings that just happened.

the paradigm for this is "shorting the box" - an investor continues to hold his stock but he shorts everything - which the US outlawed in the Securities Act of 1934. Canada promptly followed suit. The practice had wreaked havoc in the financial industry. You can see how it would have been popular during the great depression, though. Popular until it was outlawed, that is.

to protect your USD values for your US holdings, you could trade currency futures or options in FXC, the USD/CAD ETF that i mentioned. In other words, you could build your own hedge. It would be expensive, but you could do it.
 
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