It was announced this week that Vanguard will start in Canada with 6 ETFs.  In response to the news, blogger Michael James expressed disappointment that the 2 foreign equity funds would be hedged back into Canadian dollars.  I wholeheartedly agree with his view.

Canadian investors already have an extreme bias to their home market, so when buying foreign equity funds they need meaningful diversification, which includes currency.  I'm not suggesting there's anything wrong with currency-hedged funds (although they've proven to be unpredictable performers in volatile markets), but despite the proliferation of ETFs, Canadians have few un-hedged options.  They can venture south of the border and buy a U.S.-based ETF, but the currency conversion in their brokerage account makes it expensive to do.  

Our strong dollar has lead to a proliferation of currency-hedged funds.  BMO, which offers the most ETFs, hedges all of their foreign funds.  Most offerings from the other providers do as well.

Vanguard may have missed an opportunity here, but not to worry.  When the next wave of ETFs comes out next week, perhaps someone will go un-hedged.