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Buying U.S. Stocks? Want to Avoid High Currency-Exchange Fees? Check Out This ETF Hack! – The Motley Fool Canada

Using “Norbert’s Gambit” at your brokerage can save you tonnes of money when buying U.S. stocks. Here’s how to do it.
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Everyone wants to buy U.S. stocks. Shares of companies like Microsoft, Apple, and Tesla have been on an absolute tear the last decade, outperforming the market with no signs of slowing down.
Unfortunately, as Canadians, we get paid in loonies, not greenbacks. When we buy U.S.-listed stocks, we often have to pay an additional currency exchange fee on top of the existing FX rate at a rate of anywhere from 1.5% to 3%!
Obviously, this can ding your returns substantially, even if you’re investing for the long run. Later, when you sell and want to withdraw in CAD, you’ll have to repeat the process again, getting dinged another 1.5-3% on a larger sum!
Fortunately, there’s a way to avoid these fees by using an exchange-traded fund (ETF) based “loophole” called “Norbert’s Gambit.” You can perform Norbert’s Gambit at most brokerages across Canada by following this guide.
Norbert’s Gambit is a technique named after Norbert Schlenker of Libra Investment Management in Salt Spring Island, B.C.
In 2001, good, ol’ Norbert pioneered the idea of using shares listed on both Canadian and U.S. exchanges to exchange currency for less.
In this case, we will be using Horizons US Dollar Currency ETF (TSX:DLR). DLR seeks to reflect the price in Canadian dollars of the U.S. dollar. What’s cool is that DLR has a version listed in USD called DLR.U, which does the opposite.
The main risk here is that the amount you’re exchanging is too small as to be worth it. When using Norbert’s Gambit, your main fees will be commission from buying DLR and selling DLR.U and from the bid-ask spread if you used a market order. Generally, I would recommend doing this on amounts of more than $3,000.
The other risk is that the CAD-USD FX rate changes while your shares are journaling over. For instance, the USD might be worth CA$1.26 when you journal over the shares. However, after four days, the USD might appreciate to be worth CA$1.28. This will lower the value of DLR.U, which reduces the amount you receive in USD.
Savvy investors can use the DLR ETF to perform Norbert’s Gambit at most Canadian brokerages. Using Norbert’s Gambit on a large amount of CAD can help you obtain USD without paying the pesky 1.5-3% currency exchange fee imposed by banks or brokerages.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
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