Currency Is A Position You Never Chose |
Someone sits down across the desk in our Goderich office, points to their global equity holding — the one meant to give the portfolio some reach beyond Canada — and asks a fair question: "That market is up nicely. Why is my number different?"
Most of the time, the answer has nothing to do with that market.
Most of the time, the answer has nothing to do with that market.
|
You Own More U.S. Dollars (and Euros) Than You Realize
Every foreign holding is really two things at once: the investment itself — the companies, the bonds, the underlying assets — and the currency those assets are priced in. You choose the investment. The currency comes along with it. Buy a U.S. equity fund and you've bought U.S. dollars. Buy a global fund and you've bought a basket of currencies. Even a Canadian fund, held in a Canadian RRSP and priced in Canadian dollars, holds foreign currency underneath if it holds foreign assets. The wrapper is Canadian. The exposure isn't. |
The Return You Read About Isn't the Return You Earned
The headline return on a foreign market is the return earned by someone who lives there, gets paid there, and buys groceries there. A Canadian household gets that return, plus or minus whatever the exchange rate did.
Here's a simple example — the numbers are hypothetical, not pulled from any real fund.
Say you hold US$100,000, and at the time, one U.S. dollar buys C$1.40 — so your holding is worth C$140,000. A year later, it's grown 10%, to US$110,000.
Same holding, same market return — a very different result once it's converted back to Canadian dollars. Currency is a second, independent driver of return, and over time it can matter as much as the investment itself. The above example could have been done in Euros too - or any other foreign currency.
If you hold foreign investments and want a clearer sense of how much of your return is coming from currency rather than the underlying market, come in and we'll walk through it together.
The headline return on a foreign market is the return earned by someone who lives there, gets paid there, and buys groceries there. A Canadian household gets that return, plus or minus whatever the exchange rate did.
Here's a simple example — the numbers are hypothetical, not pulled from any real fund.
Say you hold US$100,000, and at the time, one U.S. dollar buys C$1.40 — so your holding is worth C$140,000. A year later, it's grown 10%, to US$110,000.
- If the exchange rate has since moved to C$1.30, that US$110,000 converts to C$143,000 — a 10% gain in the U.S. becomes about a 2% gain in Canadian dollars.
- If instead the rate has moved to C$1.50, that same US$110,000 converts to C$165,000 — the identical 10% gain becomes about an 18% gain.
Same holding, same market return — a very different result once it's converted back to Canadian dollars. Currency is a second, independent driver of return, and over time it can matter as much as the investment itself. The above example could have been done in Euros too - or any other foreign currency.
If you hold foreign investments and want a clearer sense of how much of your return is coming from currency rather than the underlying market, come in and we'll walk through it together.
This article is for general information purposes and does not constitute personalized financial or insurance advice. Speak with your advisor about the coverage that's right for your situation.
|
Article written in August 2026
|
