Investing in foreign markets can bring unexpected costs

Article Excerpt

Many investors prefer to invest in securities listed on their home markets. Familiarity with the domestic environment and companies—and a lack of familiarity with foreign markets—are big reasons. Canadian investors may also feel uncomfortable taking on the currency risk that comes with holding foreign securities—especially if they think the direction of the foreign currency is downward. Even for ETFs that are listed in Canada and quoted in Canadian dollars, the underlying holdings are priced in other currencies. That exposes you to currency risk. One way of negating this risk is to buy an ETF that holds foreign securities, but with the currency hedged into Canadian dollars. This removes the currency risk —but the fees on these ETFs are normally considerably higher than unhedged ETFs. Meanwhile, buying stocks or ETFs listed on, say, U.S. markets opens up lots of new opportunities for investors, but there are extra costs. If you have a Canadian-dollar trading account, your Canadian dollars will be converted to U.S. dollars…