theglobeandmail.com
Weak Canadian Dollar Impacts Returns on US Stock Investments
The falling Canadian dollar negatively impacts returns on hedged U.S. stock investments, but benefits unhedged investments, as exemplified by the 36% return of the unhedged iShares Core S&P 500 ETF versus 23.4% for its hedged counterpart in 2022. This is due to several factors including weak economic productivity and the unpredictable policies of U.S. President-elect Donald Trump.
- What are the key factors contributing to the current weakness of the Canadian dollar, and how do these factors influence investment strategies?
- The Canadian dollar's weakness is attributed to factors such as weak economic productivity and geopolitical uncertainties, particularly the unpredictable policies of U.S. President-elect Donald Trump. Trump's potential economic actions, including tariff threats, add to the Canadian dollar's volatility.
- Considering the uncertainties surrounding the Canadian dollar and the U.S. market, what alternative investment strategies might mitigate potential risks and capitalize on opportunities?
- While a rising Canadian dollar could favor hedged investments, the current economic and political climate suggests continued volatility. Investors may consider diversifying their portfolios beyond the S&P 500, exploring low-volatility or quality U.S. stocks or ETFs tracking defensive sectors for potential downside protection.
- What is the primary impact of the falling Canadian dollar on Canadian investors holding U.S. stocks, and how does this impact vary depending on whether the investments are hedged or unhedged?
- A weak Canadian dollar can benefit Canadian investors holding unhedged U.S. stocks, as demonstrated by the 36% return of the iShares Core S&P 500 ETF (XUS-T) compared to the 23.4% return of its hedged counterpart (XSP-T) in the past year. This difference highlights the impact of currency fluctuations on investment returns.
Cognitive Concepts
Framing Bias
The article frames the falling Canadian dollar primarily as an opportunity for investors in unhedged US stocks, emphasizing the higher returns achieved by XUS compared to XSP. This positive framing of a potentially negative economic indicator might mislead readers into overlooking the broader economic risks.
Language Bias
The article uses language that favors unhedged US stock investments. For example, describing a weak Canadian dollar as "your good friend" is clearly biased and not neutral. Terms like "huge returns" and "steep decline" carry emotional weight.
Bias by Omission
The article focuses heavily on the impact of the falling Canadian dollar on US stock investments, neglecting other potential factors influencing the Canadian economy and the global market. While it mentions "weak economic productivity" and Trump's tariff threats, it doesn't delve into these issues in sufficient detail. Furthermore, it omits discussion of how the falling Canadian dollar might affect Canadian businesses and consumers, presenting a rather narrow perspective.
False Dichotomy
The article presents a false dichotomy by suggesting that investors must choose between hedged and unhedged US stock ETFs, implying these are the only two viable options. It overlooks other investment strategies and asset classes that could be considered.
Sustainable Development Goals
The article discusses the negative impact of a weak Canadian dollar on the Canadian economy, affecting economic growth and potentially impacting employment. A weak currency reflects concerns about economic prospects and threatens economic stability, which is directly related to SDG 8 Decent Work and Economic Growth.