By Tony Dong, MSc, CETF on August 25, 2026 Estimated reading time: 7 minutes

Are currency-hedged ETFs a good idea?

By Tony Dong, MSc, CETF on August 25, 2026 Estimated reading time: 7 minutes

With the Canadian dollar weakening, investors may be considering currency-hedged ETFs. But whether hedging makes sense depends on a variety of factors.

Year to date, I’ve watched the Canadian dollar fall as low as roughly US$0.70 in mid-June. It has recovered somewhat as of August, but over the past year, there has still been weakness in the loonie. Part of that can be attributed to the tariff threats coming from the U.S. against Canada, which have created uncertainty around trade and the Canadian economy. But the Canadian dollar’s weakness is not necessarily a reflection of deteriorating domestic fundamentals. 

Part of the move has also been driven by strength in the U.S. dollar. The greenback has historically benefited from flight-to-safety demand during periods of geopolitical stress, while the higher-for-longer U.S. interest rate environment has also helped support the currency relative to its peers.

I bring this up because many Canadian investors own exchange-traded funds (ETFs) with substantial U.S. exposure. When you buy one of these ETFs without a currency hedge, your return is determined by more than what happens to the underlying stocks. Fluctuations in the Canada-U.S. dollar exchange rate can either add to or subtract from your Canadian-dollar return.

For investors who don’t want that additional source of volatility, Canadian ETF providers frequently offer currency-hedged versions of their funds. These provide the same underlying market exposure while using derivatives designed to mitigate the impact of movements between the Canadian and U.S. dollars. In many cases they are available for the same management expense ratio (MER) as the unhedged funds they are based on.

The question is whether that hedge is actually worth having. As with many things in investing, “it depends.” Here’s what Canadian investors should weigh before choosing between hedged versus unhedged ETFs.

To hedge or not to hedge?

The easiest way to understand currency hedging is to compare two nearly identical S&P 500 ETFs listed on the Toronto Stock........

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