Canadian traders with portfolios that embrace worldwide holdings might not pay a lot consideration to foreign money danger, notably if such holdings make up a small proportion of 1’s portfolio. Even for these with comparatively low ranges of overseas publicity, managing foreign money danger is necessary to do in an setting the place excessive ranges of volatility of the potential can influence foreign money markets in addition to monetary markets.
There are some within the monetary group who consider the Canadian greenback will doubtless undergo over the long run and thus recommend unhedged overseas publicity. In case you are within the camp of traders that consider overseas funding in Canada might undergo as a result of sector-specific danger associated to power, commodities and housing, then such a method might repay long run.
Within the close to time period, nevertheless, should you suppose that world financial stimulus exterior of Canada, primarily in the US, will outpace Canada, then hedging one’s publicity through foreign money hedged ETFs could also be a sensible choice.
My view has all the time been that having broadly diversified portfolio means together with overseas holdings in mentioned portfolio. Over the long run, predicting which method currencies will transfer isn’t a profitable sport. Buyers who add geographical diversification to their portfolios usually tend to seize higher risk-adjusted returns over lengthy intervals of time. For these with a shorter time period investing time horizon, I’d suggest figuring out one’s danger tolerance first, then hedging accordingly.
Make investments properly, my buddies.