# Vanguard S&P 500 Index ETF (VFV)



## james4beach (Nov 15, 2012)

Curious about this one, the Canadian traded S&P 500 index that is not currency hedged. My question is: among CAD traded ones, is this the only American broad index ETF that does not hedge currency? Are there others?

I've cooled off a bit on the idea of currency hedging -- not because of the currency exposure issue, but because of the poor implementation and execution. The fund managers are not able to make it work as well as I had assumed they would; due to all the currency derivative (swap) trades, they incur extra expenses that don't show up in the MER (thus causing a performance drag). There is a significant drag in both XIN and XSP for example due to this. As currency markets become more volatile, those currency derivative trades could become less efficient. There's also another issue of counterparty risk on derivative contracts, and the skill of their currency traders.

So right now I'm looking for a pure ETF holding just stocks, and no derivative activities, to track the US market. Traded in Canada I think there's just one... VFV (which internally just holds VOO).

Note that VFV has withholding taxes applied on dividends, so in an RRSP you are better off holding a US ETF directly (SPY, IVV, VOO). In a non-registered account I don't think it makes a difference.


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## GoldStone (Mar 6, 2011)

BMO:ZSP
http://www.etfs.bmo.com/bmo-etfs/glance?fundId=92494

ZSP owns US stocks directly.
Management fee: 0.15% (same as VFV)


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## cainvest (May 1, 2013)

Have you looked at Horizons HXS/HXS.U since it changed in April?


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## james4beach (Nov 15, 2012)

GoldStone said:


> BMO:ZSP
> http://www.etfs.bmo.com/bmo-etfs/glance?fundId=92494
> 
> ZSP owns US stocks directly.


There's something funny about ZSP. Look at their annual financial statements, page 11 at the bottom. There's a section "Unrealized Gain on Forward Currency Contract"

It shows that ZSP holds a $3 million USD/CAD derivative position (and they have $18 million net assets). In that period, the fund incurred a loss of $40,000 from the currency contract -- which is significant, because their dividends only earned $38,000. This is the kind of thing I'm trying to avoid, and I wonder why they have a currency derivative in a fund that is "not hedged".

So ZSP does contain a currency derivative, but I don't know why. I've asked BMO and hopefully they can enlighten me.


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## GoldStone (Mar 6, 2011)

They have another S&P500 ETF that hedges currency (ZUE). Are you sure you looked at the right statement?


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## james4beach (Nov 15, 2012)

Yeah I wondered if I had the right document. Here's the direct link
http://www.etfs.bmo.com/controller/document?document=ANNUAL_2012_FS_ZSP.pdf&lang=en

When I download that latest report, I see "BMO S&P 500 Index ETF (ZSP/ZSP.U)" on the front page. So I think it's the non-hedged fund.

Page 4, Expenses, shows "Realized loss on forward currency contracts" of $40k
Page 11 at bottom shows "UNREALIZED GAIN ON FORWARD CURRENCY CONTRACT", shows the $3 million forward forex position

Do I have the right document?


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## andrewf (Mar 1, 2010)

I'm not sure it's a problem with their competency. Currency hedging causes drags because of compounding or differences in interest rate. Because exchange rates are mean reverting, the compounding error strictly hurts you (in a trending market, it might help). And currently being long CAD/short USD is a ~1% interest rate differential.


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## james4beach (Nov 15, 2012)

cainvest said:


> Have you looked at Horizons HXS/HXS.U since it changed in April?


Thanks, I'll take a look at that as well. However I'm more of a fan of traditional plain vanilla ETFs, that is, ones that directly hold the stocks instead of trying to replicate indices via derivatives. The whole point here is that I'm trying to avoid derivatives, including currency derivatives


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## GoldStone (Mar 6, 2011)

james4beach said:


> Do I have the right document?


No idea.

Keep in mind, ZSP launched in Nov 2012. What they did in Nov/Dec 2012 may be not representative of their normal operations.

Hopefully they respond to your questions.


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## My Own Advisor (Sep 24, 2012)

VFV in TFSA would be subject to withholding taxes that are not recoverable, correct?


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## james4beach (Nov 15, 2012)

andrewf said:


> I'm not sure it's a problem with their competency. Currency hedging causes drags because of compounding or differences in interest rate. Because exchange rates are mean reverting, the compounding error strictly hurts you (in a trending market, it might help). And currently being long CAD/short USD is a ~1% interest rate differential.


No matter what they do, the forex derivatives have to be traded. There are inevitably fees involved and spreads... there is a cost incurred by any fund that uses them, independent of the hedging activities achieved. Worse, these things are generally OTC derivatives so there's very poor visibility about them and I'm not a fan of things with poor visibility that I can't get quotes on. My ideal ETF, always, is something that just holds stocks directly without any additional exotic assets/liabilities.

There's a rule of thumb I use in finance and investing (from working in this field for a while). When you can't totally verify or independently calculate & confirm something, such as performance or fees (e.g. the forex derivative fees) it generally means you're losing more than you think. And there's a logical reason for this... it takes independent verification and the resulting pressure in order to force a manager to be efficient.

My family does hold some hedged ones (and we're happy with XSP for instance) but I'm curious about the non hedged options. VFV and ZSP look promising, but ZSP definitely contains derivatives -- as GoldStone says it may have something to do with the young fund, I'll check it next year and see.


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## james4beach (Nov 15, 2012)

My Own Advisor said:


> VFV in TFSA would be subject to withholding taxes that are not recoverable, correct?


I think that's correct. Wow this is complicated. Here's a good article on this topic.

Someone correct me if I have this wrong but I think...

These Canadian listed ETFs that hold American stocks internally pay the withholding tax. Those taxes are only recoverable in a non-registered account.

In the RRSP they aren't recoverable. But due to tax treaties, you can hold US stocks without withholding tax -- the original American listed ETF (SPY, etc) work better. But that's only the RRSP, not applicable to the TFSA.

I think what this means is that you shouldn't hold VFV, XSP etc in either the TFSA or the RRSP. In both cases you have unrecoverable withholding taxes. It should only be held in a non-registered account.


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## cainvest (May 1, 2013)

Correct on the withholding tax in RRSP.

Horizons has a pdf comparing tax issues of HXS vs XSP.
http://www.horizonsetfs.com/Pdf/FactSheets/FundFactSheets/HXS Fact Sheet.pdf

So for RRSP is it still better to hold IVV, VTI, etc over HXS?


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## james4beach (Nov 15, 2012)

Let me add another part of my thinking here as it may benefit others.

I'm very concerned about US tax implications as the USA has recently started becoming more aggressive with their taxation (e.g. changes to dividend taxation last year) and it's expected to keep getting worse as they have a horrible deficit situation for the foreseeable future. I want to stay away from owning "US property" and being subject to US Estate Tax rules if at all possible. You can read this detailed whitepaper on the topic if you're interested.

American listed stocks are most definitely US property and have this problem. I don't want to hold these.

Currently anyway the Canadian listed ones (XSP, VFV, ZSP) are not US property so these are the only options for me. And I suppose this means I should only hold the S&P 500 in a non-registered account.


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## Spudd (Oct 11, 2011)

Apparently the US estate tax only applies if your worldwide estate is > 5.25 million.


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## james4beach (Nov 15, 2012)

Spudd said:


> Apparently the US estate tax only applies if your worldwide estate is > 5.25 million.


Currently yes, but US tax laws are changing rapidly (especially since they're broke). Personally I expect much more aggressive US tax laws in upcoming years.


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## My Own Advisor (Sep 24, 2012)

Agreed james4beach. I wouldn't be surprised to see U.S. estate taxes fall from $5+ M to half that in a couple of years.


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## My Own Advisor (Sep 24, 2012)

cainvest said:


> So for RRSP is it still better to hold IVV, VTI, etc over HXS?


I personally like VTI in the RRSP. Own 200 shares. VTI = 3,300+ stocks for 0.05% MER, or something like that.


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## cainvest (May 1, 2013)

My Own Advisor said:


> I personally like VTI in the RRSP. Own 200 shares. VTI = 3,300+ stocks for 0.05% MER, or something like that.


VTI will likely make it into my portfolio as well, good broad coverage will minimal MER.
BTW, HXS is also not subject to estate taxes for those concerned.


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## james4beach (Nov 15, 2012)

cainvest said:


> BTW, HXS is also not subject to estate taxes for those concerned.


Agreed, that is an advantage of HXS and other Canadian domiciled investment funds


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## leeder (Jan 28, 2012)

I believe ishares released a Canadian version of IVV. The ticker is XUS. Management fee is 0.14%, which is slightly cheaper than VFV and ZSP.

In terms of the withholding tax, my two cents on this is that while it's not ideal to hold this in the TFSA because the tax is not recoverable, any gains and distributions are not taxable. While I try to make my own portfolio as tax efficient as possible, it isn't and shouldn't be the only consideration.


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## andre83 (May 17, 2013)

For TFSA accounts, the best way to get the S&P 500 return seems to be HXS. This ETF does not hold US stocks directly and therefore the gains from dividends have no withholding tax deducted.


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## james4beach (Nov 15, 2012)

leeder: thanks for the reply. I agree that taxes should only be part of the equation.

Thanks for tipping me off about XUS, I didn't know about this. Totally new, created just a month ago!
http://ca.ishares.com/product_info/fund/overview/XUS.htm

Hard to say much about it since there are no financial statements, but I'll definitely be watching this from now on.


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## james4beach (Nov 15, 2012)

I wanted to correct something I said earlier. I made a sweeping statement that XSP and other Canadian listed ETFs would not be subject to US estate tax, but after reading more this seems unclear. I still think the Canadian listed ETFs should be safe, but I'm not 100% certain.

But you actually should worry about US estate taxes, because that $5 million threshold is likely going to decline... fast...
http://canadiancouchpotato.com/2011/12/08/ask-the-spud-am-i-vulnerable-to-us-estate-taxes/

"As it happens, if no new law is enacted, the exemption will drop from $5 million to just $1 million in 2013, and the maximum tax rate will be 55%."

I don't think it dropped to $1 million due to a last minute postponement, but that was a close call. *This will change at some point soon*. It will go down to $1 million, and before you know it, less, maybe 500k... until it hits your family. Yes that means you're liable as long as your total assets (including home in Canada) exceed the $5 million threshold ... or $1 million ... or $500k.

So I think caution is required with ANY American stock investments (and indeed, real estate investment, etc) because it opens up this liability. I'm just warning everyone that the US is getting much more aggressive about collecting taxes, including from foreigners. Just owning some US stocks or ETFs can get you in trouble.


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> So I think caution is required with ANY American stock investments (and indeed, real estate investment, etc) because it opens up this liability. I'm just warning everyone that the US is getting much more aggressive about collecting taxes, including from foreigners. Just owning some US stocks or ETFs can get you in trouble.


You guys are needlessly panicking based on incorrect info. Canadian domiciled funds are not subject to US Estate Taxes. Also, the effective estate exemption for Canadians is $5 million indexed to inflation from 2011. This measure is now permanent in the legislation passed to avoid the fiscal cliff in the New Year.


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## humble_pie (Jun 7, 2009)

CanadianCapitalist said:


> Also, the effective estate exemption for Canadians is $5 million indexed to inflation from 2011


wasn't the $5 million exemption for US taxpayers only?

most cmf members fall into the category that the IRS terms "non-resident aliens." 

NR aliens will have their estate tax exemptions pro-rated to the proportion of US holdings in their global estate. Please note that the IRS includes entire rrsps & principal residences in calculating global estate.

a canadian resident & taxpayer with no US citizenship - ie a NR alien - could easily leave an estate that would surpass $1 million if rrsps & residence are included. Suppose such an estate held 20% in US stocks. That might permit the dearly departed's estate an exemption of $200,000. My tentative understanding is that the balance could be subject to US estate taxation. The rates for this are extremely high.

i think that this is a subject where a great deal more cold information has to be collected. Fortunately we are not dead - in fact we are quite a lively bunch - so there is plenty of time to soberly collect up proper info. 

at the present time, it would be my thought that the IRS is not able to go after large estates save & except for those that include real estate situated in the US of A. However, whenever Washington would get itself organized, the mechanism for taxing non-resident alien estates with US stock holdings would be the broker networks.

all canadian brokers are using jitney services in the US. The jitneys are all US firms. Washington would merely have to enforce that jitneys not release US securities to the heirs of NR alien estates until the declaration of global estate assets had been produced & all foreign estate taxes had been paid to Washington's satisfaction ...


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## cainvest (May 1, 2013)

Found this doc that provides estate tax info -> http://www.pwc.com/en_CA/ca/estate-...3-us-tax-exposure-canadians-2013-02-19-en.pdf

No worries here, I'll never reach 5.25M


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## humble_pie (Jun 7, 2009)

humble_pie said:


> a canadian resident & taxpayer with no US citizenship - ie a NR alien - could easily leave an estate that would surpass $1 million if rrsps & residence are included. Suppose such an estate held 20% in US stocks. That might permit the dearly departed's estate an exemption of $200,000. My tentative understanding is that the balance could be subject to US estate taxation. The rates for this are extremely high.


on 2nd thought i think perhaps my tentative is flawed. The $5 million exemption might apply to foreign estates. What's not flawed is that the pro-ration of US securities within a global NR alien estate will be utilized to reduce the exemption further, in some cases much further.

this is a complex subject area with, as far as we know, not too many actual test cases yet. A good source of info would be the studies published by international CA firms. These are often published privately so they are house instruments only, to be used by their own partners & associates. However, a few such papers do seem to escape to the outside world & turn up in internet searches.


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## My Own Advisor (Sep 24, 2012)

re: U.S. estate taxes, needed some help on this, complex issue:

http://www.myownadvisor.ca/2013/05/death-and-taxes-and-taxes-in-death-u-s-estate-taxes/


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## humble_pie (Jun 7, 2009)

My Own Advisor said:


> re: U.S. estate taxes, needed some help on this, complex issue:
> 
> http://www.myownadvisor.ca/2013/05/death-and-taxes-and-taxes-in-death-u-s-estate-taxes/


thank you for this excellent article & all the research & thoughtfulness it entailed ... but i hope u won't mind if i make a suggestion?

on hyper-complex issues like the apparently-relentlessly-advancing US estate tax, i for one tend to read the anointed authorities almost exclusively. They are the ones who have the responsibility of guiding us taxpayers through the maze.

in this sense, cainvest's link upthread is a gem, because it is actually a house publication by price waterhouse coopers that has escaped into the wild. Tant mieux pour nous.

in your article, you have only brought your excellent authorities Mark Goodfield & Kati Basi onboard at the very end. Whereas, imho, their views & their pronouncements are the real news. I think that it would have made for a stronger article to have cited them in verbatim quotes up top in the lead to the story. Even better would have been to recruit one or both to prepare their own article(s) for your blog, or obtain permission to re-post one of their existing articles.

it's reasonable to consider that, once the US of A gets foreign estate taxation up & running, washington could then move to lower the $5 million exemption. It's such a complex issue that i for one am going to follow only the licensed experts.


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## My Own Advisor (Sep 24, 2012)

No problem with the suggestion humble...duly noted!


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## Belguy (May 24, 2010)

Once we are finished with addressing the U.S. tax issues on this thread, do you think that we could then come up with a short list of the best U.S. equity ETF's to include in both registered and unregistered portfolios?

Any thoughts on this article by the G&M's Rob Carrick?

http://www.theglobeandmail.com/glob...-picks-for-canadian-investors/article6115956/


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## cainvest (May 1, 2013)

While this might present a somewhat bad tax issue for a few I don't see it as something to worry about for the average investor. Even if they do change the exemption value, and I don't really see a reason for them to do so, you just adjust your portfolio accordingly. Also note that while we don't have an "estate tax" we do have a "probate tax" to deal with but those taxes are much smaller in comparison.

IMO, the yearly tax implications on said funds are more important than this issue. Also, how much does one really lose by investing on the CDN side (no estate tax) funds?


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## humble_pie (Jun 7, 2009)

ca you don't see a reason for them to change the exemption value?

they're not strapped in washington? ottawa? toronto? london? paris? governments everywhere?


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## cainvest (May 1, 2013)

I would think there are far better ways to extract taxes from investors. How many even get hit by this estate tax ... only those who suffer accidental death and fall within the guidelines to be taxed right?


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## GoldStone (Mar 6, 2011)

cainvest, think of taxable accounts. You cannot restructure your portfolio on a short notice if you sit on a large capital gain. You either pay capital gains tax now, or estate tax later.


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## humble_pie (Jun 7, 2009)

there are billions of non-resident aliens who invest in US stock markets so it's a fabulous crop for washington to plan to harvest

never heard about accidental death, i thought regular death was sufficient

guidelines will likely be lowered as others say, they were originally only $1M but dubya postponed em, then obama introduced the $5M threshhold. Against this one must rack the quenchless thirst for new money on the part of all gummints everywhere


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## cainvest (May 1, 2013)

GoldStone said:


> cainvest, think of taxable accounts. You cannot restructure your portfolio on a short notice if you sit on a large capital gain. You either pay capital gains tax now, or estate tax later.


Well you'd only need to resturcture quickly if you expect to die soon, in which case the capitol gains will likely get you anyways. Yes, *if* the exemption did change and by enough that it would require restructuring, you'd have to incur some cap gain tax if in an unregistered account. I'm not saying estate tax should be completely ignored, adjust your portfolio accordingly if you are really at risk. Seems to me, for the typical investor (mostly RRSP/TFSA weighted), it's almost a non issue.


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## Belguy (May 24, 2010)

So, which are the best hedged or unhedged U.S. equity ETF's for registered and unregistered portfolios or does it even matter a tinker's damn?? If not, I'll just stick with my XSP and go back to sleep. :sleeping::sleeping::sleeping::sleeping:

You people just worry too much!!!


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## CanadianCapitalist (Mar 31, 2009)

humble_pie said:


> on 2nd thought i think perhaps my tentative is flawed. The $5 million exemption might apply to foreign estates. What's not flawed is that the pro-ration of US securities within a global NR alien estate will be utilized to reduce the exemption further, in some cases much further.


You are right that the $5.25m exemption does not apply to non-resident aliens. However, the effect is the same if the estate is below $5.25m because the pro-rata estate tax relief cancels out the portion of the estate subject to tax. In fact, you were the one who corrected my misunderstanding of this.

The great news about estate tax for Canadians is the fact that the estate tax law has been made permanent in 2013 giving us some modicum of certainty for planning purposes. Of course, laws can change...


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## james4beach (Nov 15, 2012)

I don't know how anyone can say the tax situation has been made permanent. I agree that I may have started unnecessarily panicking about the US tax issue, but I still think the US fiscal situation is going to be in great flux for the upcoming years.

Government has the power to change any law. There is no such thing as a permanent guarantee in tax law!


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> I don't know how anyone can say the tax situation has been made permanent. I agree that I may have started unnecessarily panicking about the US tax issue, but I still think the US fiscal situation is going to be in great flux for the upcoming years.
> 
> Government has the power to change any law. There is no such thing as a permanent guarantee in tax law!


The term permanent simply refers to the fact that unlike the recent past, estate tax exemptions and credits are not set to expire in a future year. Of course, tax laws can change. What form those changes take will be pure speculation.


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## james4beach (Nov 15, 2012)

Sure, and I'll admit I am just speculating on the tax law changes, but given the trillion dollar deficits and the imminent insolvency of the USA, somehow I think they're going to collect a lot more tax including from foreigners.

If that sounds too flaky, you can refer to the article I posted from the Swiss investment bank.


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## Belguy (May 24, 2010)

To heck with this thread as nobody is suggesting which U.S. equity ETF's to invest in.

I'm moving on to a different thread!!:frown::chargrined::grumpy::grief:


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## james4beach (Nov 15, 2012)

Belguy said:


> To heck with this thread as nobody is suggesting which U.S. equity ETF's to invest in.


OK bringing it back to the topic. We have a good list here of ETFs. These are all CAD-traded, non currency hedged S&P 500 index ETFs. I'm thrilled to see there's so much selection... until very recently there weren't any Canadian based non-hedged ones! Interesting how a weak Canadian dollar changes investor's desires 

XUS, annual fee 0.14% and estimated MER 0.17%
ZSP, 0.17% MER
HXS, 0.17% MER, derivative-based
VFV, 0.18% MER

Notes:
* I've listed MER for each, instead of max management fee which is a different thing
* XUS is brand new but I've estimated MER based on the others
* All of these except HXS will automatically incur withholding taxes; those foreign taxes are recoverable if you hold it non-registered
* Personally I prefer the traditional ETF structure, without derivatives, that hold underlying stock(s). All the above except HXS.


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## james4beach (Nov 15, 2012)

leeder said:


> I believe ishares released a Canadian version of IVV. The ticker is XUS. Management fee is 0.14%, which is slightly cheaper than VFV and ZSP.


I've included it in my list (see above). We don't exactly know the MER of XUS, because you only get this information from the year-end report and XUS is only a month old (hence iShares doesn't list the MER). It's likely either going to be 0.16% or 0.17% MER.


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## GoldStone (Mar 6, 2011)

james4beach said:


> * Personally I prefer the traditional ETF structure, without derivatives, that hold underlying stock(s). All the above except HXS.


XUS and VFV are wrap ETFs. They hold US ETFs, not the underlying stocks.


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## james4beach (Nov 15, 2012)

GoldStone said:


> XUS and VFV are wrap ETFs. They hold US ETFs, not the underlying stocks.


True but it's still pure stock ownership. Most importantly, the NAV is priced transparently and there is no counterparty risk or credit risk involved. I don't have any problem with the Canadian ETF simply wrapping the US ETF, provided it's a good American ETF (and these ones both are).


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## andrewf (Mar 1, 2010)

There's counterparty risk insofar as the ETF managers engage in securities lending.


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## james4beach (Nov 15, 2012)

True about securities lending and the counterparty risk there. Both BMO and iShares do plenty of it.

But that's not wrap vs non-wrap issue... whether you have ZSP which buys the 500 stocks individually, or XUS which only holds IVV, both cases involve securities lending. In ZSP it's done by BMO, in XUS it's done by American iShares.


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## My Own Advisor (Sep 24, 2012)

@james4beach,

Using XUS or VFV, wrapped products, CDN ETFs holding US ETFs, would you keep them non-registered then?


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## Belguy (May 24, 2010)

And so, is it time to make a switch in my registered account from XSP to what?:confused2:

Also, how do you feel about having a separate allocation to U.S. small cap stocks? How would you split your allocation between an S&P 500 ETF and a small cap U.S. ETF and which small cap fund do you like?

What are your thoughts on XSU which is hedged?

http://ca.ishares.com/product_info/fund/overview/XSU.htm

Over the past three years, there has been little to differentiate in the performance between XSP and XSU.


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## james4beach (Nov 15, 2012)

My Own Advisor said:


> Using XUS or VFV, wrapped products, CDN ETFs holding US ETFs, would you keep them non-registered then?


With those things like VFV, yes I would keep them non-registered. But that's because I don't mind applying for the foreign tax credit and I don't mind doing all that ACB accounting.


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## james4beach (Nov 15, 2012)

Belguy said:


> And so, is it time to make a switch in my registered account from XSP to what?:confused2:
> 
> Also, how do you feel about having a separate allocation to U.S. small cap stocks? How would you split your allocation between an S&P 500 ETF and a small cap U.S. ETF and which small cap fund do you like?
> 
> ...


Complicated question about whether you should make a switch. Depends on if you want currency hedging or not and whether it's a TFSA or RRSP. Also depends on whether you fear US estate taxes like I do  Too many factors.

Bit of small caps may be good, if you believe we're in a bull market.

No thoughts on XSU


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## Canuck (Mar 13, 2012)

anyone else having issues pulling up canadian etf quotes on Yahoo? all day today i've been getting "symbol does not exist"


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## Belguy (May 24, 2010)

I have heard that, as you get older, that you should reduce your exposure to unhedged investments and move more and more to the hedged variety.

Do you agree with this?


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## andrewf (Mar 1, 2010)

Nope. If you want less risk, move towards more fixed income. I think hedging CAD at this point is a bit foolhardy, given CAD is if anything overvalued.


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## My Own Advisor (Sep 24, 2012)

Fair point andrew.


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## PuckiTwo (Oct 26, 2011)

Canuck said:


> anyone else having issues pulling up canadian etf quotes on Yahoo? all day today i've been getting "symbol does not exist"


We have the same problem, since monday afternoon the canadian ishares etfs don,t show on the portfolio screen. This is not uncommon on yahoo, usually they don,t take so long to fix it.


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## Belguy (May 24, 2010)

As of today, the CDN $ is trading in the 94 cent U.S. range as it continues it's downward trend.

Those unhedged U.S. index ETF's are looking better all the time!!

Are you stuck holding the hedged versions?:stupid::hopelessness::upset::frown:

Oh yes, and you might want to consider cancelling your upcoming planned trip to the U.S. as it is getting more expensive with each passing week.


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## andrewf (Mar 1, 2010)

Because a couple % difference in cost? C'mon!


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## Sampson (Apr 3, 2009)

Belguy said:


> As of today, the CDN $ is trading in the 94 cent U.S. range as it continues it's downward trend.
> 
> Those unhedged U.S. index ETF's are looking better all the time!!
> 
> ...


?!?

Currency hedging as a theoretical strategy makes most sense when the currencies are fluctuating, this way, you are not locked into the rate at which you made the initial transaction.

The efficacy of currency hedging is what I find suspect - but the strategy is designed to minimize the effect of these types of FX fluctuations.


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## andrewf (Mar 1, 2010)

A hedged foreign equity ETF is essentially a combo investment: 100% long the equity in question + 100% long Canadian dollar. If you would not speculate in currency fluctuations absent the foreign equity investment, why would you engage in FX speculation with the equity investment?


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## Belguy (May 24, 2010)

I am a simple man and all that I know is when the CDN$ is dropping in value against the greenback, I am better off holding U.S. investments denominated in U.S. funds.:stupid::stupid::stupid::stupid:

Of course, if the world economy starts to recover without central bank intervention, and commodities start to take off again, then the CDN$ will start to increase in value against the greenback and we will all wish that we held hedged investments.

If true, what does a buy-and-hold investor do--hold the hedged or unhedged funds?

It makes my head explode.


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## Ihatetaxes (May 5, 2010)

You need a vacation. A month long break from this website (and looking at your investments) might be good for you!


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## Sampson (Apr 3, 2009)

But Belguy, when the reverse is true, would you complain your are benefitting from currency fluctuations since this is not adequately tracking the index?


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