Two different things
- Trading currency. The currency you buy and sell the fund in. For funds on a Canadian exchange, that's usually Canadian dollars.
- Currency exposure. The currency of what's inside. A Canadian-listed fund of U.S. stocks holds assets priced in U.S. dollars.
Buying in Canadian dollars doesn't remove the second one.
U.S. stocks rise 10% in a year, measured in U.S. dollars. What a Canadian investor gets depends on what the U.S. dollar did against the Canadian dollar:
| Over the year, the U.S. dollar… | Unhedged fund | Hedged fund |
|---|---|---|
| rises 5% against the Canadian dollar | about +15.5% | about +10% |
| doesn't move | +10% | about +10% |
| falls 5% against the Canadian dollar | about +4.5% | about +10% |
Before fees and hedging costs. Hedging is never perfect, so a real hedged fund won't match these figures exactly.
Hedged and unhedged
A currency-hedged fund uses contracts to cancel out most of the exchange-rate effect. It usually says "CAD-hedged" or "hedged" in its name or in ETF Facts. An unhedged fund leaves the exchange rate in.
- Hedging removes one source of ups and downs. It also has a cost and doesn't track perfectly.
- Unhedged funds add currency swings. Over long periods those swings have gone in both directions.
Investors and researchers disagree on which is better for the long run. The point of this lesson is that you know which one you hold.
One more layer: U.S. dividend withholding
The United States usually withholds 15% of dividends paid to Canadian investors. In a TFSA you can't recover it. In an RRSP, the tax treaty generally exempts U.S.-listed securities you hold directly. How a fund is structured changes how this applies, so check with the fund company or a tax professional before rearranging anything.
Converting money yourself
Buying a fund listed in the U.S. means converting Canadian dollars to U.S. dollars first. Brokerages charge for that, often as a percentage built into the exchange rate. It's a real cost that doesn't appear in the fund's MER.
Do this before the next lesson
- For each fund that holds foreign stocks, check whether its name or ETF Facts says "hedged".
- Write "hedged" or "unhedged" beside it.
- Look up what the Canadian dollar did against the U.S. dollar over the past year. That helps explain part of your return.
You own an unhedged Canadian-listed fund of U.S. stocks. U.S. stocks are flat for the year, but the U.S. dollar rises 5% against the Canadian dollar. Your return in Canadian dollars is roughly:
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Where this comes from
- Currency illustration: Planted North calculation (1.10 × 1.05 = 1.155; 1.10 × 0.95 = 1.045), before fees and hedging costs
- Scotia Wealth Management, "Tax planning considerations for Canadians owning U.S. assets" (January 26, 2026): 15% treaty rate, RRSP exemption, no exemption for TFSAs