Analysis of CAD-Hedged vs Unhedged US Securities for Canadian Investors

##1. Content Summary
A Reddit discussion examines the trade-offs of investing in CAD-hedged US securities, focusing on four key themes: higher costs of hedging, lost upside from USD appreciation, liquidity challenges, and unusual price movements on US market holidays. The discussion highlights the tension between currency risk mitigation and long-term return optimization for Canadian investors.

##2. Key Points
a.

: CAD-hedged ETFs incur additional expenses for currency risk mitigation. For example, the iShares Core S&P 500 ETF (CAD-Hedged) has a total MER of ~0.22% (including ~0.13% in hedging costs), compared to ~0.095% for the unhedged SPDR S&P 500 ETF (SPY) [0].
b. : Hedged positions eliminate gains from USD strengthening against CAD. The CAD weakened 0.86% over the past month and 0.41% over the past year, meaning unhedged investors would have benefited from currency appreciation [1].
c. : CAD-hedged securities often have lower trading volumes. For instance, Nintendo’s CAD-hedged CDR (NTDO.NE) recorded only 104 shares traded on a recent day, far below its average volume of ~12,641 shares [3].
d. : On US market holidays, CAD-hedged securities may experience small, unusual price changes due to reduced trading activity and elevated spreads [3].

##3. In-Depth Analysis
a.

: Hedging costs are not trivial—they add ~0.13% to the MER of CAD-hedged ETFs [0]. Over a 10-year period, this additional cost could reduce cumulative returns by ~1.3% (assuming no compounding), eroding long-term gains.
b. : The USD/CAD exchange rate averaged ~1.3992 in 2025, with the CAD weakening consistently over recent months [1]. If this trend continues (as projected by Trading Economics, which forecasts the USD/CAD to remain around 1.41 through Q4 2025), unhedged positions will outperform hedged ones.
c. : Low trading volumes (like NTDO.NE’s 104 shares) increase the risk of slippage—investors may not execute trades at desired prices, especially for larger positions [3].
d. : The Ontario Securities Commission (OSC) found that Canadian ETFs linked to US markets experience lower volume and wider spreads on US holidays [3]. This explains the “weird tiny moves” noted in the Reddit discussion, as reduced liquidity amplifies the impact of small trades.

##4. Impact Assessment
a.

: Hedged securities are preferable for those with short-term goals (1–3 years) to avoid currency volatility, despite higher costs [0].
b. : Unhedged positions are more beneficial if the USD is expected to remain strong, as currency gains outweigh hedging costs over time [1].
c. : Liquidity issues in hedged securities make them less suitable for frequent trading, as slippage can eat into profits [3].
d. : For buy-and-hold strategies, unhedged ETFs are more cost-effective and capture potential USD appreciation [0].

##5. Key Information Points & Context

• Trade-Offs
  : Hedging provides stability but at the cost of returns (via MERs and lost currency upside).
• Partial Hedging
  : RBC Wealth Management suggests partial hedging as a middle ground, but no detailed performance data is available [0].
• Market Context
  : The CAD’s weakness is linked to Canada’s commodity-dependent economy—fluctuations in oil and gas prices can amplify currency movements [1].

##6. Information Gaps Identified
a.

: No comprehensive liquidity figures for a range of CAD-hedged securities beyond NTDO.NE.
b. : Lack of data on how partial hedging strategies (e.g.,50% hedged) balance risk and return.
c. : No analysis of hedged vs unhedged performance during extreme currency shocks (e.g.,2020 pandemic).
d. : How do hedging costs vary across sectors (e.g., tech vs energy)?