With the Canadian dollar achieving parity with that of the US, you might wonder what portfolio managers north of the border think about it all.
At least one thinks not too much about it -- because his investments are hedged:
"We're effectively hedging away the currency risk,'' said Andrew Massie, vice-president of investment management for the $7-billion Mackenzie Cundill Value Fund. "There's an opportunity cost (to hedging) when the dollar is weakening. But, when the dollar is strengthening, it really does help save our bacon,'' he said, referring to investors and fund managers. "Being both, I'm rather happy about that,'' added Massie, who spoke to a group of investment advisers in Regina Thursday.
Massie, who has been with Cundill Funds for 23 years, said Cundill Funds managers have been hedging their funds against currency risk for 20 of the last 30 years. In fact, hedging investments by buying futures or options has been part of the Cundill "value investment strategy'' since Peter Cundill started managing the funds in 1975. Certainly, hedging has protected the Mackenzie Cundill Value Fund from the negative impact of the strengthening dollar.
"We hedge as matter of strategy, not as a matter of policy,'' Massie said. Of course, hedging can't protect investors against a stratospheric rise in the dollar, which could have grave consequences for the export-oriented, resource-based Canadian economy. "If we saw the dollar at $1.25 (US), I don't know what would happen in this country. I certainly hope we don't see that."
Regular readers know I don't engage in hedging, primarily because it's just not economical for me to do so. And it's no big deal -- over the long term -- because studies show that over a decade hedging is a wash. But there's no doubt currency swings can make a big dent (or provide a big boost) to stocks over a shorter time horizon.
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