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Globe and Mail
01-07-2025
- Business
- Globe and Mail
The greenback question
The U.S. dollar (USD) has lost about 5% of value relative to the Canadian dollar (CAD) so far this year, while the trade-weighted USD has dropped 9%. All else being equal, that means any U.S.-denominated investments have faced a 5% headwind so far in 2025 for Canadian investors, assuming they're unhedged. This has led to a recurring topic in recent conversations on currency, specifically whether or not to hedge U.S. dollar exposures. This isn't a moot point, as there are many different considerations beyond whether the CAD at 73 cents is going to 75 cents or back down to 70 cents. ] Accurately forecasting where a currency is going to go next is rather challenging. Additionally, for a Canadian's portfolio, there are multiple other considerations when it comes to the question of hedging. USD exposure can have a portfolio diversification benefit, and there are many longer-term trends that should be considered. Below, we share our views on all these aspects and our current thoughts on currency hedging. Portfolio diversification For Canadian investors – who are most of our readers – the USD looks fantastic! The TSX and the Canadian dollar are risk-on assets; both are more sensitive than many others to trends in global economic growth. When growth improves and markets become more risk-on, Canadian equity and currency tend to win. Conversely, when growth slows or recession risks rise, the TSX and CAD tend to fall while the USD rises. Even if you dislike policy coming from America, the USD remains a safe-haven currency. If markets go risk-off, money tends to flow back to America, bidding up the currency. As a result, U.S. dollar exposure often acts as a ballast for Canadian investor portfolios, even more so than bonds. The following chart shows the correlation of various investment vehicles to the TSX. USD exposure carries a negative correlation. Additionally included in the chart is the beta, as this helps demonstrate the size of the relative moves, not just the direction. Again, USD stacks up very well as a diversification tool for Canadian portfolios. These numbers look similar over longer periods as well. So, this could support not hedging, given the diversification benefits. But there are other considerations as well. Long-term trends It's very difficult to put a valuation or fair value on a currency exchange rate. Variations in economic activity and shorter-term interest rates certainly drive exchange rates over subsequent months or quarters. Much longer-term purchasing power parity does play a role, but you've got to look really long-term. If a currency is very cheap in one country compared to another, capital flows and trade will gradually reverse the spread (this happens more reliably with developed nations' currencies). The freer the flow of capital, the faster the process; the more restrictions, the slower it goes. But it is not fast either way. Even after the recent rise in the CAD vs USD so far in 2025, we believe the CAD is still cheap or undervalued. But it has been for most of the past decade, as it was overvalued for the previous decade. These are very long and slow-moving cycles. Taking a really long view, the CAD was a dog during the '90s, the USD was a poor performing currency in the '00s, and then the CAD sucked again in the '10s to 2025 so far. If it's a coin flip as to which currency performs better in the next five or ten years, we might say it is a well-loaded coin in favour of the CAD. But there are likely many moves in both directions during that period, some that align with the potential longer-term trend and some that are countertrend. We believe a long-term trend of a weaker USD and strong CAD might support hedging USD exposure. Near-term factors And then there's the rest of the factors, many factors, driving near-term volatility in exchange rates. The CAD has often been influenced by oil prices, but this relationship was stronger pre-2020 than it has been lately. Conversely, changes in short-term relative yields between Canada and the U.S. have become a larger determinant. A narrowing of the spread between two-year yields has supported the Canadian dollar rebound, as has the spike in oil prices as Middle East conflicts intensify. Add cooling uncertainty on the path of tariffs, halving the quantity of short CAD futures contracts, and a minor 'anti' U.S. theme in markets, and we believe the CAD bounce has many supporting tailwinds. These are all known knowns in the currency world, and likely reflected in the recent weakness in USD and strength in CAD, which rallied from below 70 cents to the current 73-cent level. So, in the near term, it really comes down to what happens next. If we get more clarity on tariffs, we could see more CAD strength. If we see economic data continue to decelerate, we could see USD strength. Or some other aspect could rise up to move exchange rates in a way that surprises everyone. Final thoughts So there you have it: no simple answer to this difficult question. From a portfolio construction perspective, we believe you shouldn't hedge just because you want that diversification benefit. From a likely long-term trend perspective, the USD could weaken, supporting hedging. Near-term factors are noisy. We would only act on these factors when things move too far or too fast. At 73 cents, we are rather ambivalent; it's too high to get us excited about adding any USD currency hedges, but not high enough to entice us to remove any existing hedges. In other words, a lot of words and charts just to say we are rather neutral. Craig Basinger is the Chief Market Strategist at Purpose Investments Inc. and portfolio manager of several Purpose funds, including Purpose Tactical Thematic Fund. Notes and disclaimer Content copyright © 2025 by Purpose Investments Inc. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. This article first appeared on the ' Market Ethos ' page of the Purpose Investments' website. Used with permission. Charts are sourced from Bloomberg unless otherwise noted. The content of this document is for informational purposes only, and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice. Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this document are forward-looking. Forward-looking statements ('FLS') are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as 'may,' 'will,' 'should,' 'could,' 'expect,' 'anticipate,' intend,' 'plan,' 'believe,' 'estimate' or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
Yahoo
29-06-2025
- Business
- Yahoo
Building a $35,000 TFSA Portfolio One Step at a Time
Written by Tony Dong, MSc, CETF® at The Motley Fool Canada Despite its name, the Tax-Free Savings Account (TFSA) isn't really designed to be just a savings account. Parking your money in cash or a high-interest savings product inside it is a complete waste of what this account can offer. Here's why: The TFSA is one of the most powerful tools available to Canadian investors. Any capital gains, dividends, or interest earned inside the account are completely tax-free, not just tax-deferred. That means you get to keep every dollar your investments earn, and you don't have to report it when you file taxes. Plus, all the contribution room you build up over the years can be reclaimed if you ever make a withdrawal. So, if you've managed to stash away $35,000 in your TFSA, it's time to start treating it like a real investment portfolio. And the easiest way to do that is by using low-cost, diversified exchange-traded funds (ETFs). Here's a simple combination I like, using three ETFs from BMO Global Asset Management. Begin with broad U.S. equity exposure through BMO S&P 500 Index ETF (TSX:ZSP). It tracks the S&P 500 Index, which includes the 500 largest publicly traded companies in the United States. This ETF charges a very low 0.09% management expense ratio (MER), making it extremely cost-efficient for long-term investors. And here's the real kicker: beating the S&P 500 is hard. According to SPIVA data, over 88% of active managers underperformed this benchmark over the past 15 years. That means your best bet is to ride with the index instead of trying to beat it. ZSP lets you do just that. Next, add exposure to your home market with BMO S&P/TSX Capped Composite Index ETF (TSX:ZCN). This ETF has a rock-bottom MER of 0.06%, making it one of the most affordable ways to invest in Canada. ZCN tracks the S&P/TSX Capped Composite Index, which includes a wide range of Canadian companies from multiple sectors. The 'capped' part just means no single company can dominate the index beyond a certain weight, helping keep things diversified. It's a great way to get exposure to Canada's largest publicly traded companies, without having to pick and choose individual stocks. Round things out with international developed market exposure through BMO MSCI EAFE Index ETF (TSX:ZEA). The MER is slightly higher at 0.22%, but that's normal when investing outside North America due to higher operational costs. The ETF tracks the MSCI EAFE Index, which stands for Europe, Australasia, and Far East. That includes countries like the U.K., Germany, France, Japan, and Australia. Adding international stocks helps smooth out regional risk and ensures your portfolio isn't overexposed to North American markets. This simple three-ETF combination gives you a globally diversified equity portfolio inside your TFSA using just $35,000. You get exposure to thousands of companies across multiple countries and sectors, all at a very low cost, and with no need to monitor or rebalance every week. It's a smart way to make your TFSA work for you. The post Building a $35,000 TFSA Portfolio One Step at a Time appeared first on The Motley Fool Canada. Before you buy stock in Bmo S&p/tsx Capped Composite Index Etf, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Bmo S&p/tsx Capped Composite Index Etf wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $24,927.94!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 30 percentage points since 2013*. See the Top Stocks * Returns as of 6/23/25 More reading Made in Canada: 5 Homegrown Stocks Ready for the 'Buy Local' Revolution [PREMIUM PICKS] Market Volatility Toolkit Best Canadian Stocks to Buy in 2025 Beginner Investors: 4 Top Canadian Stocks to Buy for 2025 5 Years From Now, You'll Probably Wish You Grabbed These Stocks Subscribe to Motley Fool Canada on YouTube Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
20-06-2025
- Business
- Yahoo
How to Make Your $7,000 TFSA Contribution Work Harder This Year
Written by Chris MacDonald at The Motley Fool Canada The Tax-Free Savings Account (TFSA) investing vehicle is one of the best, and perhaps most under-utilized, tools available to Canadian investors. This account allows Canadian investors to put $7,000 in after-tax dollars to work in an investing account, with the corresponding growth and dividend income provided by the investments in this account eligible to be pulled out tax-free at any point in time. For those planning for retirement, having access to a tax-free chunk of capital when it comes time to retire is a big deal. That goes double for those who plan to work into retirement, and/or those who expect to have a higher tax burden down the line. With the way fiscal spending is trending everywhere, that's a bet many may be willing to make. Here are three tips investors looking to maximize the performance of their TFSAs may want to think about right now. Generally speaking, most financial planners would advise investors to first consider which types of investments they're thinking about including in their TFSA. A very high-growth stock such as Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) that has seen rapid price appreciation in recent years would be disproportionately rewarded by being held in such a fund. That's simply due to the fact that such stocks have continued to compound over time, and that capital appreciation investors would have seen from investing in such stocks early on would have resulted in most of the value of their current holdings being in price appreciation. In a TFSA, this price appreciation is tax-free. That said, putting all of one's TFSA funds in one or two particular stocks is a strategy most financial experts would also be up in arms about. A TFSA does disproportionately benefit investors who want to pick growth stocks that perform well. The key is that such holdings need to perform, and there are no guarantees on this front. Thus, holding a broader basket of diverse growth stocks may be the optimal choice for most passive long-term investors. Whether it's a growth-focused ETF or mutual fund, supplementing single-stock picks is a strategy I'm personally in favour of, and it is a strategy I think most investors should consider. One of the problems with a TFSA (which is similar to a Roth 401(k) in the U.S.) is the relative ease at which investors can pull their capital out of a TFSA when needed. While liquidity is great (and that's a feature of this investment vehicle), in terms of saving for retirement, excessive withdrawals over time from a TFSA can really degrade the long-term value that can come from holding high-quality growth stocks in this account. As such, I think the prudent advice for most investors is to put whatever possible into a TFSA (preferably to the maximum allowed), and let these funds sit there for as long as possible. That's the advice most financial experts would provide, and it's easier said than done. But for those who are patient and willing to let their winners ride, this is the account that makes the most sense to do so. The post How to Make Your $7,000 TFSA Contribution Work Harder This Year appeared first on The Motley Fool Canada. More reading Made in Canada: 5 Homegrown Stocks Ready for the 'Buy Local' Revolution [PREMIUM PICKS] Market Volatility Toolkit Best Canadian Stocks to Buy in 2025 Beginner Investors: 4 Top Canadian Stocks to Buy for 2025 5 Years From Now, You'll Probably Wish You Grabbed These Stocks Subscribe to Motley Fool Canada on YouTube Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy. 2025
Globe and Mail
12-06-2025
- Business
- Globe and Mail
Twenty Canadian mutual funds and ETFs with low ESG risk
Canadian-domiciled mutual funds and exchange-traded funds that exhibit low degrees of environmental, social and governance risk and that have outperformed peers Canadian retail investors continue to give mixed signals on investing sustainably. On one hand, the sustainable mutual fund and ETF market saw net redemptions over 2024, something that hasn't happened since 2019. On the other, industry surveys (such as the Responsible Investment Association's Annual Investor Opinion Survey conducted by Ipsos) continue to point to desire by retail investors to invest sustainably, citing that two-thirds of Canadians are interested in the concept. The disconnect between investor interest and actual investment behaviour might stem from a lack of clarity around the purpose of sustainable investing. While some investors view ESG considerations as a way to align investments with personal values, this perspective can overlook the growing relevance of the considerations to financial performance. Increasingly, factors such as climate risk, corporate governance and social responsibility are being recognized as material to a company's long-term success – and, by extension, to investor returns. As such, evaluating ESG risks should not be seen merely as a values-based choice, but as a prudent step in making informed, forward-looking investment decisions. This opinion largely aligns with that of Canadian Prime Minister Mark Carney. He sees ESG risks as financially material factors that investors must consider to properly assess long-term value and risk. In his book Value(s), he writes that ESG criteria help investors 'identify common factors that assist risk management and value creation but also deliver superior financial returns.' He also asserts that 'fiduciary duty is not a barrier to considering ESG factors – it demands it,' emphasizing that ignoring such risks could breach legal and ethical responsibilities. For Mr. Carney, ESG is not a peripheral concern, but a core component of financial analysis. With all of this in mind, today I use Morningstar Direct to find outperforming mutual funds and ETFs that, based on Morningstar's assessment, exhibit lower degrees of ESG risk when compared to global peers. To do this, I screened for Canadian funds and ETFs (a universe of roughly 4,400 unique investments) for those that: Only the oldest share class of Canadian-domiciled mutual funds and ETFs were considered in the search. The mutual funds ETFs that qualified for today's screen are listed in the table accompanying this article. The table includes tickers, management expense ratios, asset class, category, ratings and returns. Readers are urged to first look at the asset class and category to which each fund belongs, given that ratings are relative to these peer groups. I note importantly that I did not screen on the intent of the fund, only the ESG risk scores. As such, there are funds on the list that don't necessarily align their marketing (or names) with a sustainability tilt. However, the portfolio holdings (according to Morningstar's analysis) reflect lower degrees of ESG risk. This article does not constitute financial advice. Investors are encouraged to conduct their own analysis before buying or selling any of the investments listed here. Ian Tam, CFA, is director of investment research for Morningstar Canada.
