Tag Archives: global investing

Using ETFs for International Investing

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Image from Pexels/Anton Uniqueton

By Erin Allen, VP, Online Distribution, BMO ETFs

(Sponsor Content)

As an investor, diversification is crucial to reducing risk and achieving long-term growth. International investing is a great way to diversify your portfolio, but it can be challenging for Canadians to navigate the complex world of foreign stocks and currencies. One solution is to use exchange-traded funds (ETFs) for international investing.

Benefits

There are many advantages to using ETFs for international investing. First, they provide exposure to a broad range of international markets, including developed and emerging markets. This diversification can help reduce risk (when one market zigs and another zags) and increase returns over the long term.

Second, ETFs are typically more cost-effective than other forms of international investing. They have lower fees than traditional mutual funds, and you can invest in them for no commission at many online brokerages in Canada.

Third, ETFs provide transparency and ease of access. You can easily track the performance of your international ETFs and adjust your portfolio as needed. Additionally, most ETFs are denominated in Canadian dollars, so you don’t have to worry about currency conversion fees or fluctuations.

Considerations

  • Currency: Currency returns are an important factor impacting investors purchasing a non-Canadian asset. Foreign currency fluctuations can affect the total return of assets bought in that currency when compared to the Canadian dollar. ETF providers offer both hedged and unhedged options, giving Canadian investors more tools to efficiently execute their investment strategies. The objective of currency hedging is to remove the effects of foreign exchange movements, giving Canadian investors a return that approximates the return of the local market. Continue Reading…

Abenomics & Japan focus: Positive Earnings Power

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By Jesper Koll

Special to the Financial Independence Hub

Japan is not a value trap. Against a backdrop of very attractive equity valuations — at 13.7x, the TOPIX price-to-earnings (P/E) multiple has dropped back to the lowest 5% level reported over the past decade  — the trigger for upside performance must come from positive earnings surprises. Our analysis suggests the probability of a sharp positive inflection in earnings visibility is about to be delivered in Japan, possibly as early as the upcoming fiscal half-year results season, which was about to get going by the end of October (FANUC reports October 25; Toyota, November 7; Mizuho Bank, November 13).

All said, we maintain our forecast for TOPIX earnings growth of 20%, against consensus expectations of 2.5% (according to Bloomberg).

Why?

Corporate guidance and consensus estimates are based on, in our view, extremely cautious baseline assumptions. Most important, top-line sales growth is forecast to drop from 6.7% last year to a mere 3.7% in the current FY 3/2019. Now, we know that sales growth has a high correlation with nominal gross domestic product (GDP) growth; and here in Japan as well as in Japan’s major export markets — America, China and Asia — nominal GDP growth is actually accelerating. Given the high operational gearing of Japanese companies, the sensitivity of earnings to sales growth is very high. Basically, a 1% difference in baseline sales adds (or subtracts) as much as 10% to the bottom line of listed companies in Japan.

The exchange rate assumptions are the second factor making positive earnings surprises likely. Corporate guidance and consensus estimates are still based on an average of ¥105 to the U.S. dollar for the fiscal year ending March 31, 2019. Now, the fiscal-year-to-date has averaged ¥110.6 to the dollar (April 1 to September 27). That difference alone should add approximately 5% to earnings.

To be sure, Japanese corporate managers may have been wise to operate on very cautious baseline assumptions this year. At the start of the year, the threat of tariffs and other geopolitical risks were very high indeed. Personally, I doubt that managers will go all-out bullish and abandon their instinctive conservatism quite yet. However, the reality of better-than-expected top-line sales growth and a more favorable exchange rate are likely to compound into fact-driven positive earnings revisions momentum. Against the backdrop of attractive valuations, this should very much help create more positive equity market momentum in the coming months. Continue Reading…

Finance 101: How currency hedging affects your investment return

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By Neville Joanes

(Sponsor Content)

If you invest overseas, your holdings may be valued in foreign currency. When markets are volatile, a portfolio manager can use currency hedging to protect the value of the investment.

Let’s look at how currency changes can affect how your money works. For instance, let’s say you book a vacation in Miami, Florida for your family. You’ll fly down from Toronto and enjoy some fun in the sun in the wintertime. You can relax while your kids cool off in the hotel swimming pool.

But between booking your reservation in the summer and actually paying your bill at the end of your stay in January, you notice that your costs jumped nearly 10 per cent – even though the bill in US dollars was the same as when you booked it months before! What gives?

If you had purchased US dollars at the time you booked and paid for your vacation with it, you’d be fine. But you used a credit card (like most folks), and had to pay the difference in the value of the currency. Now the vacation is over and you spent more than you intended.

A similar thing can happen with investments. Let’s see how it works.

Non-hedged vs. hedged investing: a simple example

Imagine a Canadian investor with diversified, international holdings. A few months ago, they bought some tech stocks that looked ready to go up. And lo and behold, they did! Their US tech company stock went up 8 per cent (measured in US dollars).

But there was another factor working against this investor: Canada! Surging oil prices powered the economy ahead at full speed. The Canadian dollar appreciated by an impressive 6 per cent against the US dollar!

What’s the result of this non-hedged investment? The investor’s US tech stock investment gives them a positive return of just 2 per cent. Not so impressive.

What would have happened if the investor hedged their investment? In that case, the investor gets the full 8 percent return!

See, hedging is like an insurance policy, when volatility is high. But here’s the catch: hedging is complicated. It’s time-consuming. You need high-level expertise and bandwidth to watch the market carefully.

For most Canadian investors, that’s not an option. It’s probably something you want to let your portfolio manager (like ours) take care of for you.

Hedging on an income stream to ensure steady returns. That’s how we do it

Let’s say there is an income stream from a dividend-paying investment, like in our bond and income-generating ETFs. That income stream is where we look to hedge the investment. Continue Reading…

Ask Tyler: Should I sell my stocks, given the North Korea situation?

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By Tyler Mordy, Forstrong Global

Special to the Financial Independence Hub

Diversifying Fire & Fury

What danger does the North Korea situation present for global investors? Clearly, Trump’s indulgence in nuclear brinksmanship carries risk. Pyongyang potentially firing missiles at US territory in the Western Pacific is also real. And there is a global existential threat should it ever escalate into intercontinental warfare.

Yet, rather than add to the volumes of prognostications about North Korea’s specific situation, consider the track record of major events and their impact on markets.

Most geopolitical events are false alarms

First, most geopolitical events are false alarms. As card-carrying members of the change-anticipation field, we understand the desire to divine the big events: to be first to spot the outlines of a looming disaster can be glorious (and career-enhancing).

But most warnings are false alarms simply because big turns are rare events. Remember Y2K, Saddam Hussein’s so-called “weapons of mass destruction” and, recently, Brexit? None of these widely-feared threats materialized or they delivered benign outcomes.

Second, more often than not, geopolitical events create opportunity. Rummaging through past post-crisis periods produces a long list of stellar returns after the initial event. For example, the Cuban Missile Crisis in October 1962 was a 13-day confrontation between the US and the Soviet Union, widely considered the closest the Cold War came to full-scale nuclear warfare.

However, after the crisis subsided, the Dow went on to gain more than 10% that year. Or take the Korean War, when the North invaded the South. This conflict lasted from June 1950 — July 1953. During that time, the Dow was up an annualized 13.6%. History is brimming with similar examples.

Such events often have binary outcomes

Finally, geopolitical events may have binary outcomes. By this we mean that a negative scenario would either produce an extremely large portfolio loss or gain. There is no knowing which ahead of time. As such, narrowly focusing on one type of risk is speculative at best.

Continue Reading…

FWB TV: The Free Lunch that is Index Investing

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Screen Shot 2016-04-28 at 11.54.55 AM
Author Lars Kroijer

It’s been said that diversification is the investing equivalent of a free lunch, since it allows you to manage your risk while getting higher returns.

 The good news is that according to research, index funds and other passively managed investments like ETFs (Exchange traded funds) have diversification built in.
Yes, we’ve heard of people who were able to buy the right individual stock or sector at the right time, but they are few and far between. You can learn more about the free lunch of indexing by viewing the latest FWB video by clicking on this title: There is such thing as a free lunch and it’s called index investing.
Indexing beats picking individual stocks or sectors
The video, which runs three-and-a-half minutes, points out that using index funds to diversify equity exposure around the world is easier and more effective than attempting to pick individual stocks or even identifying promising industries.
And while it’s possible to buy the entire world’s stock market through a single fund, investors shouldn’t take that for granted. As investment author Lars Kroijer relates, 40 or 50 years ago you would have been hard pressed to be able to buy into most markets outside North America, Europe or Japan.

Continue Reading…