ETFs: Offering broad access to global markets
Like many investors, Canadians typically have a home-country bias. There is a preference to invest where you live and in companies that you know. However, by focusing predominantly on Canadian companies and Canadian investments, investors can limit their return potential, and may be overexposed to certain sectors.
There’s a whole other world out there
Not only does Canada represent a mere fraction of all global investment opportunities, but the number of Canadian multinationals – companies that have established themselves outside of their home country – pales in comparison to other countries.
How do you tap into the potential that the world has to offer? ETFs are a great place to start.
Go global with ETFs
Global ETFs can offer diversified and broad exposure to specific countries or regions of the world in a very tax-efficient and cost-effective way. In some cases, like in the U.S., which is the world’s largest market and home to many of world’s largest multinationals, ETFs can allow investors to drill down even further.
For example, one investor may want to focus on larger, well-established U.S. stocks while another investor may want to focus on smaller stocks that may offer even greater growth potential.
Hedged or unhedged
Many ETF providers also offer the additional option of whether to factor currency into the equation. In other words, should the fund be hedged or unhedged?
When investing outside of Canada, two factors come into play: the value of the individual stocks within a portfolio, and the currency in which those stocks are denominated. If an ETF is unhedged, then the portfolio is exposed to both factors. If your ETF is hedged, there is no exposure to currency.
To hedge or not to hedge?
Let’s say that an investor owned an unhedged U.S. ETF. If the U.S. dollar appreciated against our loonie, then the investor would benefit not only from any increase in value in the individual stocks, but the U.S. currency appreciation as well. On the flipside, if the U.S. dollar fell in relation to our loonie, being exposed to currency would hurt the investor’s returns. With a hedged ETF, the currency equation is neutralized so the value of the portfolio is only impacted by the performance of the individual holdings.
There’s no right or wrong. It’s all about more choice for the investor. You can work with your advisor to determine the right choice for you.
Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs). Investment objectives, risks, fees, expenses and other important information are contained in the prospectus, please read it before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
Manulife ETFs are managed by Manulife Investments, a division of Manulife Asset Management Limited.