What is currency risk?
A mutual fund that buys and sells securities denominated in currencies other than the Canadian dollar may experience a gain or a loss depending on changes in the exchange rate between the foreign currency and the Canadian dollar. This is known as “currency risk.” *
* Sometimes this is also referred to as “exchange rate risk.”
Why does it matter?
Currency risk can have a positive or a negative effect on portfolio returns. For example, a Canadian investor with unhedged foreign currency exposure can benefit from a depreciating Canadian dollar. On the other hand, the same investor’s portfolio will be affected negatively by an appreciating Canadian dollar.
It should be noted while hedging may mitigate currency risk, it may not necessarily reduce total portfolio risk.
Three reasons to protect against currency risk
1) The Canadian dollar has a long-term history of volatility against the U.S. dollar.
2) Currency volatility can have a significant impact on short-term portfolio returns.
3) Deciding when and how much to hedge currency can be difficult.
Fidelity Systematic Currency Hedging
Designed for investors who are seeking to mitigate currency volatility while having the potential to capitalize on expected changes in the USD-CAD exchange rate, Fidelity Systematic Currency Hedging uses a rules-based, quantitative model to determine the optimal hedge ratio for a fund.
Fidelity currency neutral solutions
Protecting portfolios against adverse currency movements is an important part of investing. Currency neutral funds can help mitigate the impact of changes in exchange rates for investors interested in accessing foreign markets.
U.S. dollar purchase option
Canadian investors can use their U.S. dollars to invest in a wide variety of Fidelity mutual funds. U.S. dollar funds may be suitable for investors who already have U.S. dollars and want to maintain their investment returns in U.S. dollars, or investors who may be saving for goals that involve U.S. dollars, for example, those who are planning to spend time in the U.S. during their retirement.