Currency War Part 2

Good day,

In my last commentary, I wrote about the impact the loonie’s rapid appreciation has had on Canadian investors holdings US securities. While the S&P500 has climbed roughly 13% year-to-date, the rapid rise in the Canadian dollar has eroded nearly all such gains. Prior to 2017, the Canadian dollar had gradually declined against the USD for several years which had benefited Canadian investors holding American securities, but some of those profits have been given back lately due to the loonie’s reversal.

It’s worth noting that even Canadian stocks listed on our very own Toronto Stock Exchange can be negatively impacted by a rising Canadian dollar against the USD. Many large Canadian companies like Financials and Technology also choose to list on US exchanges to capture a larger audience of investors. Of course, these “dually” listed companies trade in US currency on American exchanges and in Canadian dollars on our local exchanges.

Below are the performance results of our 7 inter-listed Canadian stocks in one of our core portfolios. The dates of the results are noted on each graph. Each chart shows 2 results for each stock: the blue line represents the return on the US exchange and the orange line represents the return on the Canadian exchange (the results we get). For example, Magna returned 14.58% in the US while it produced 9.93% less or 4.65% on the Canadian side. An explanation for this difference in return is that every time there is a slight change between the value in the Canadian and US dollars, the traders/computers buy or sell to skim out the inefficiency — a strategy known as arbitrage. The 7 inter-listed Canadian stocks below witnessed an average return of 7.38% since May but that return declined to -1.88% in the Canadian market, partially due to arbitraging. (YCharts)

While clearly, these are quality stocks which have performed well for us, the short-term currency war has impacted net results. At this stage, the strong loonie will begin to work to our advantage – weaker USD = more shares.

Have a great weekend!


Daniel Popescu CFP, CIM, FMA, FCSI

President & CEO


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