International equities

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International equities are generally purchased by Canadians to provide portfolio diversification. International equities, in traditional definitions, are all developed market equities outside the US, or outside North America. For Canadians, the definition of global equities includes US stocks. This article will consider non-US holdings, excluding emerging markets. US equities and emerging markets are considered in separate articles.

International equities are often benchmarked against the MSCI Europe-Australia-Far East Index (EAFE Index).[1] In January 2017, the countries representing more than 5% of the index are Japan, the United Kingdom, France, Germany, Switzerland and Australia, in order of importance.[2] [3] Vanguard has transitioned to using the FTSE Global Equity Index series[4] for its index funds and ETFs.

Mutual funds and exchange-traded funds

Available in Canada

Many actively managed Canadian mutual funds are available that allow Canadians to purchase foreign equities. Passively managed index funds or exchange-traded funds (ETFs) are also available. A notable index fund is the TD International Index Fund - e, Fund Code TDB911.

The Canadian arm of BlackRock, Inc. offers the iShares MSCI EAFE Index ETF (CAD-Hedged), TSX symbol XIN, which is a currency-hedged version of the EAFE Index. A unhedged version is the iShares Core MSCI EAFE IMI Index ETF (XEF).

Vanguard Canada offers the FTSE Developed All Cap ex U.S. Index ETF (VDU) and its hedged equivalent (VEF). Unfortunately these funds will eventually include a 7-8% allocation to Canada.[5] Alternatives which exclude Canada were launched in December 2015: the FTSE Developed All Cap ex North America Index ETF (VIU) and the hedged equivalent (VI). These new funds are supposed to get their exposure by holding the stocks directly, which has tax advantages over the “wrap” stucture.[5]

BMO Exchange Traded Funds offers the BMO MSCI EAFE Index ETF (ZEA) and its hedged equivalent (ZDM).

Available on US exchanges

US stock exchanges offer broad (e.g. EAFE) but also regional or country-specific international ETFs. Canadians can get access to these products through their discount brokerage, but face currency conversion costs.

US-based ETFs that cover the EAFE Index include the iShares ETF EFA and Vanguard's VEA. A total-world stock ETF with the symbol VT and an all-world ex-US ETF with the symbol VEU are also available from Vanguard; these ETFs have a small Canadian component, although the Canadian section is not tax-efficient because it does not qualify for the dividend tax credit.

American Depositary Receipts (ADRs)

An American Depositary Receipt, or ADR, is a certificate representing a shares in a non-US stock.[6] These certificates trade on US stock exchanges and allow individuals to purchase shares in non-US companies such as Toyota or Nestle without having to access overseas stock exchanges – and their clearing and settlement systems. The largest supplier of certificates is The Bank of New York Mellon,[7] which is also among the biggest share custodians in the world. A custodian looks after record-keeping and corporate events such as dividend payments for the owners of the shares, be they individual investors or pension or mutal funds. ADRs represent shares that are custodialized in an American bank[8] – just like domestic shares – but they are traded much like ETFs, with market-makers buying and selling creation units to arbitrage price differences between the underlying stock price and what is bundled into an ADR.[9]

Tax implications

US-domiciled ETFs that are held in registered accounts may have tax withheld in the US. If so, this tax will not be recoverable in Canada.

Foreign holdings must be reported to CRA if they total over $100000.[10]

Currency implications

Main article: Currency hedging

One common misconception is that owning an ETF that trades in US dollars necessarily exposes the holder to the effect of the Canadian-US dollar exchange rate. In fact, the US dollar exposure cancels out for securities that are denominated in other currencies. To see this, consider the case of a US-dollar denominated ETF or ADR that holds a security denominated in pounds sterling. For simplicity, suppose the US dollar and Canadian dollar are at parity and the exchange rate from the US dollar to the pound is exactly 2:1. A security valued at £10 would thus be worth $20 US and $20 Canadian. Suppose that the Canadian dollar and pound sterling then both depreciated by 20% versus the US dollar, with the new exchange rates being 1 GBP = $1.60 US and 1 C$ = $0.80 US. The security would now be worth only $16 US (10 × $1.60). But since the Canadian dollar would now be worth only $0.80 US dollars, the $16 US would now be $20 Canadian - and the value of the security in Canadian dollars would not have changed because the Canadian dollar to pound sterling exchange rate was unchanged.

Mathematically, the exchange rates in this case can be calculated as follows:

GBP/US$ × US$/C$ = GBP/C$

so the US dollar cancels out. Similarly, US-dollar-traded securities priced in other currencies - Euros, yen, Swiss francs, Australian dollars, etc. - will also reflect currency fluctuations only with respect to the exchange rates of the pricing currencies versus the Canadian dollar.


  1. Featured index - EAFE - MSCI, viewed December 28, 2015.
  2. MSCI EAFE INDEX (USD), viewed January 9, 2016
  3. iShares MSCI EAFE ETF, viewed January 9, 2017
  4. FTSE Global Equity Index Series (GEIS), viewed December 28, 2015.
  5. 5.0 5.1 Canadian Couch Potato, Decoding Vanguard’s New International Equity ETFs, December 11, 2015, viewed December 27, 2015
  6. The Free Dictionary, ADR, viewed March 11, 2009.
  7. Bank of New York Mellon, Depositary Receipts, viewed March 11, 2009.
  8. Benefits Canada,"The ABCs of ADRs," 2007-12-01.
  9. Investopedia,"What parties are involved in the creation of an American depositary receipt?," viewed 2009-03-11.
  10. T1135 - Foreign Income Verification Statement, viewed January 10. 2014.

External links