What a weak loonie means for Canadian investors

Currency movements are highly volatile and hard to predict – so individual investors should stay away from taking direct currency bets

Andrew Willis 16 August, 2019 | 2:19AM
Facebook Twitter LinkedIn



Andrew Willis: Canadian investors could not have missed the headlines about a troubled loonie. The Canadian dollar has been weakening recently, with falling oil prices and rising trade concerns. Is this something you should worry about? Broadly, no, but now is a good time for investors to assess how vulnerable their portfolios are to currency movements.

The first thing you want to do is find out if your mutual funds or ETFs have direct foreign currency exposure. If so, is it hedged? Many products with foreign holdings have a hedged version that will mitigate that risk – for a price.

I spoke with Mark Noble, Senior Vice President of ETF Strategy at Horizons ETFs and he explained that these products perform daily trades to bring the assets into Canadian dollars, but costs like transaction fees and buy/sell spreads will contribute to about 1% a year in lost returns.

We generally don’t like currency bets here at Morningstar, because currency movements are highly volatile and hard to predict. But here are a few tips.

Exporters like a lower loonie because it makes their goods relatively cheaper on foreign markets, while importers like a higher loonie to reduce the cost of foreign goods.

And when it comes to holding foreign-currency-denominated assets, an unhedged product in a lowering loonie environment means a boost to returns. The opposite happens when the foreign currencies fall relative to the loonie.

Also, if you think the US dollar may begin to fall again, there’s always the option to stick with the good old loonie. 

For Morningstar, I’m Andrew Willis

Facebook Twitter LinkedIn

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility