One might argue the Canadian dollar has moved too far too fast. As we inch closer to 80 cents, one U.S. economist, David Rosenberg of Gluskin Sheff + Associates, highlighted in a recent research note that as the “smart money” continues to move into oil, there is reason to believe the Canadian dollar could hit 82 cents before fatigue sets in. So goes oil and so goes the dollar in many cases. Of course, recent weakness in the U.S. is a catalyst as well.
What does this mean to your portfolio if you are an investor in U.S. stocks?
The average person who invests in the U.S. isn’t likely hedging their positions to protect themselves from a currency move, but you can be sure global companies you invest in probably are. Now might be a good time to review your U.S. exposure while recognizing no one should ever invest in only one country, one currency, one sector or one company. It is simply too much risk, possibly too much exposure and not enough diversification.
As you review your portfolio look for the following:
1. How much exposure do you have to the U.S.? You will likely want some exposure given the concentration of the TSX to energy, financials and materials; however, many companies including the financials, utilities and even pipelines have a significant exposure in the U.S., so you may already have more exposure than you realized.
2. If you tend to overlook currency moves, consider a currency-hedged Exchange Trade Fund that will do the hedging for you. There will be costs for this added feature but it might be worth the peace of mind.
3. If you own U.S. companies that pay a dividend, consider keeping the payments in U.S. dollars, particularly if you are frequent traveller to the U.S. or happen to be a snowbird. This allows you to match revenue and expenses in the same currency.
As the Canadian dollar heads higher, there are always winners and losers. Looking at the big picture if you hold U.S. stocks, as the U.S. dollar weakens, recognize it will be beneficial for those companies that do business abroad. While you might lose on the currency exchange, you could win on share price gains offsetting some of the pain.
It is tough to try and time the bond, stock or currency markets. You have to get moves right twice – buying and selling. A better strategy is to buy good quality companies across a number of sectors and accept the diversification will help to buffer some of the currency swings.