A CAD-hedged ETF removes the US-dollar swing from your returns. That sounds safer, but in the worst stock crashes the US dollar rose and cushioned unhedged Canadians. Here is how both behaved, with exchange-rate data.
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It depends on whether you want your US stocks to carry US-dollar risk. An unhedged ETF such as XUS gives you the S&P 500 plus the US dollar. A hedged ETF such as XSP gives you the S&P 500 return with most of the currency effect removed, minus the cost of hedging. Over long periods the currency effect has been large in both directions, so the choice changes results.
Many long-term investors hold US stocks unhedged on purpose: in past crashes the US dollar tended to rise, partly offsetting stock losses for a Canadian. Investors who will spend the money in Canadian dollars soon, or who already hold a lot of US-dollar assets, sometimes hedge part of it.
Annual averages from the Federal Reserve’s exchange-rate data on FRED, in Canadian dollars per US dollar, match the Bank of Canada’s averages for recent years:
| Period (annual averages) | C$ per US$ | US dollar vs loonie | Effect on an unhedged Canadian |
|---|---|---|---|
| 2002 → 2011 | 1.5704 → 0.9887 | −37.0% | US returns shrank in C$ |
| 2007 → 2025 | 1.0734 → 1.3973 | +30.2% | US returns grew in C$ |
| 2011 → 2025 | 0.9887 → 1.3973 | +41.3% | US returns grew in C$ |
Illustrative: on C$400,000 of US stocks, a 10% move in the US dollar is a C$40,000 gain or loss in Canadian dollars, before the stocks themselves move. Your own number is covered in how much dollar exposure you have.
Usually it rose against the loonie when stocks fell, which helped unhedged Canadians. Not always. Monthly averages from FRED:
| Episode | C$ per US$ (monthly avg) | US dollar vs loonie | Helped unhedged holders? |
|---|---|---|---|
| Financial crisis, Jul 2008 → Mar 2009 | 1.0130 → 1.2645 | +24.8% | Yes, a lot |
| COVID crash, Feb 2020 → Apr 2020 | 1.3286 → 1.4048 | +5.7% | Yes |
| Inflation bear market, Dec 2021 → Oct 2022 | 1.2800 → 1.3689 | +6.9% | Yes |
| Tariff selloff, Jan 2025 → Apr 2025 | 1.4389 → 1.3981 | −2.8% | No, it added to losses |
Illustrative: the S&P 500 (SPY) fell 56.5% peak to trough in US dollars in 2007–09 in Exent’s data. If the US dollar rose 24.8% over the same stretch, a Canadian holding it unhedged would have been down about 46% in Canadian dollars, against about 56% for a fully hedged holder. Monthly averages and peak dates do not line up exactly, so treat this as the shape, not the precise result.
The main cost or benefit comes from the gap between Canadian and US short-term interest rates. A hedged fund effectively sells US dollars forward each month. When US rates are higher than Canadian rates, that forward sale costs the fund money; when Canadian rates are higher, it can add a little. On top of that come trading costs and a small tracking difference, because the hedge is reset periodically while the portfolio moves every day.
The cost does not show up in the MER. It appears as a gap between the hedged fund’s return and the index return in Canadian dollars with currency removed. Compare the hedged and unhedged versions’ multi-year returns on the issuer’s site to see it. More on what hedging costs in general in the cost of hedging.
| Unhedged (e.g. XUS, VFV) | CAD-hedged (e.g. XSP, VSP) | |
|---|---|---|
| Return in C$ depends on | US stocks + US dollar | Mostly US stocks only |
| When the US dollar rises | Extra gain | No extra gain |
| When the US dollar falls | Extra loss | Protected |
| In 2008, 2020 and 2022 crashes | Cushioned by the US dollar | No cushion |
| In the 2025 selloff | Hurt by the US dollar | Protected |
| Ongoing cost | MER only | MER plus hedging cost or gain |
| Typical use | Long-term growth money | Money to be spent in C$ soon, or partial hedge |
The fund-by-fund comparison of unhedged S&P 500 options is in VOO vs VFV vs XUS. Ways to manage dollar risk beyond ETFs are in how to hedge the dollar.
Neither is better in general. Unhedged funds add US-dollar swings, which have cushioned Canadians in most past crashes; hedged funds remove most of that swing at a cost tied to interest-rate differences.
Both are iShares S&P 500 ETFs listed in Toronto. XUS is unhedged, so its Canadian-dollar return moves with the US dollar; XSP is hedged to the Canadian dollar.
No. It rose against the Canadian dollar in 2008–09, 2020 and 2022, but fell about 3% between January and April 2025 while US stocks sold off.
Because hedging has costs: the interest-rate gap between Canada and the US, trading costs, and tracking error from resetting the hedge only periodically.
It depends on how soon the money will be spent in Canadian dollars and how much US-dollar exposure they already have. Some retirees hedge part of the money they plan to spend in the next few years and leave long-term money unhedged.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.