Investing in US-listed ETFs offers significant advantages for Canadian investors, particularly within RRSP accounts, due to their tax efficiency and generally lower annual fees compared to Canadian-listed ETFs. However, a major hurdle when purchasing these ETFs is the necessity of transacting in US dollars. Currency conversion fees can quickly add up, with many discount brokerages charging up to 1.5%—this means a hefty fee of $150 on every $10,000 exchanged. To efficiently invest in US-listed ETFs, it’s crucial to employ a strategy that minimizes these conversion costs.
One such method, which has gained popularity among savvy DIY investors for its cost-effectiveness, is known as Norbert’s Gambit. Named after Norbert Schlenker, a pioneering investment advisor from British Columbia, this technique allows investors to convert currencies at near-spot rates, sidestepping the hefty fees typically associated with such transactions.
At RBC Direct Investing, executing Norbert’s Gambit is remarkably straightforward and can be done entirely online, without the need to interact directly with customer service. This ease of use represents a significant advantage, streamlining the investment process for those looking to manage their investments actively.
Understanding Norbert’s Gambit
The process involves using a specific ETF, the Horizons US Dollar Currency ETF, which comes in two versions: one traded in Canadian dollars (ticker: DLR) and the other in US dollars (ticker: DLR.U). Both versions are traded on the Toronto Stock Exchange (TSX) and can be used as a vehicle to efficiently exchange Canadian dollars for US dollars. This exchange can then facilitate the purchase of US-listed ETFs, thus avoiding the usual high costs of currency conversion.
For those unfamiliar with this strategy or finding it complex, I have created a detailed video tutorial to guide you through each step of Norbert’s Gambit at RBC Direct Investing. Additionally, for a deeper understanding and further insights into this method, our comprehensive white paper is available, which delves into the nuances of the strategy and its applications.
By incorporating this method into your investment strategy, you can save hundreds of dollars in conversion fees, making your investment in US-listed ETFs more cost-effective and maximizing your potential returns.
