# Do you hedge your foreign equity exposure



## robfordlives (Sep 18, 2014)

Whether it be through ETF's or directly through stocks, do you hedge your foreign currency exposure? I can see the pros and cons to either approach. Personally I am not hedging and holding my foreign exposure through XAW, VXC and VFV. One of the thoughts I have is that if the CAD $ is strengthening against all other currencies/USD then it is likely due to a strong economy and higher oil prices. This should bode well for Canadian equities in that environment and would offset any currency loses experienced by not hedging. In the inverse situation we would of course see a weakening CAD$ and then FX gains on our foreign stock exposure. 

I don't think there is a right or wrong answer but for many of us the $ impact will be material either way.


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## m3s (Apr 3, 2010)




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## gardner (Feb 13, 2014)

No. Holding foreign currency denominated investments *IS* my currency hedge.

Hedging to C$ as done by some funds...
(1) is an unnecessary drag on performance;
(2) doesn't actually achieve its objective -- ie: doesn't work; and
(3) has a wrong-thinking objective that fundamentally undermines an important aspect of foreign investment diversification.


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## Jimmy (May 19, 2017)

I think you have to do something just because our economy is so commodity/resource based and the C$ is very dependent and correlated to the price of oil. 

From 2009 to 2013 the CAD $ rose ~ 25% in large part due to oil which peaked at $100 up from ~ $35/bbl. So you would have lost 25% on your US investments w out hedging. Now it has swung 25% in the other direction

I want my returns to reflect my investments only and not some wild fluctuations in the forex markets.

But there is some natural hedging. ie the USD is a good hedge against US stocks ( $US rising bad for US exports etc) . Just think oil impacts too much of our $.


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## james4beach (Nov 15, 2012)

I strongly think foreign stock holdings should be unhedged (agree with gardner & m3s).

The native currencies are a desirable part of the global diversification that you want with foreign stock holdings. Diversification is the one "freebie" in investing and you absolutely should not throw that away by hedging currencies.

Here's something to think about: what happened to investors in countries like Iceland and Argentina whose domestic currencies got wiped out? Their foreign investments were critical in preserving their wealth. However, the investor would have thrown away all those benefits if they hedged those foreign investments back to domestic currency. In that situation, it's not just a performance drag, it's an absolute disaster.


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## AltaRed (Jun 8, 2009)

Per explanation by James, I have never hedged my ex-Canada holdings because I want the geographic protection against a major swoon/crash in the loonie. I have lived and worked enough outside of Canada to recognize we are mostly a blip in global developed markets. If the loonie crashes: 1) import inflation will take off in CAD equivalent making much of what we buy (more than almost any Canadian thinks) a lot more expensive, 2) having ex-Canada assets appreciate in CAD equivalent more than offsets import inflation, and 3) our Canadian companies might be able to do better exporting to other countries due to higher CAD equivalent pricing (margins) but on the other hand, many of their costs will go up too, e.g. prices of imported machinery, fuel (gasoline, diesel, etc that is priced in USD).

By not hedging, I am self-compensating for the general lack of faith I have in the loonie itself.

Finally there is the cost of hedging itself.


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