US-listed ETFS are the most tax-efficient way to invest in foreign equities within your RRSP account. The funds also tend to have lower annual fees than Canadian-listed ETFs. However, they must be bought and sold in US dollars, and if you have to exchange your Canadian dollars for greenbacks, it can be extremely costly. Many discount brokerages charge about 1.5% – or a whopping $150 on a $10,000 conversion. If you’re going to use US-listed ETFs, you need to find a way to mitigate these high costs.
If you need to convert loonies to US dollars, I’ll show you a technique that can save you hundreds of dollars per transaction.
Introducing Norbert’s gambit
Savvy DIY investors have long used a technique called “Norbert’s gambit” to sidestep these steep currency conversion costs. The name comes from Norbert Schlenker, an investment advisor in B.C. who was the first to popularize it.
Norbert’s gambit with DLR and DLR.U
The simplest way to do Norbert’s gambit is with the Horizons US Dollar Currency ETF. This ETF – which is equivalent to holding US cash – is available in two versions. Both trade on the TSX, but the first, with the ticker symbol DLR, is bought and sold in Canadian dollars, while the second, DLR.U, trades in US dollars (Note: Some investors prefer to use interlisted securities to implement the gambit, as this avoids the need to speak with a trader at BMO InvestorLine).
You can use these ETFs to exchange Canadian dollars for US dollars and then use the proceeds to buy US-listed ETFs. Norbert’s gambit can be confusing, so I’ve put together a video tutorial that you can follow along with. For more information on this strategy, please refer to our white paper.
Hi Justin,
Any chance that you might update this article to show the current BMO Investorline platform? It kind of looked like I could do the entire transaction myself, but I couldn’t figure out how to journal to the other side of the account. I ended up calling the desk to buy the USD version of DLR.
Thanks.
hi Justin,
It was pretty straightforward to do norberts gambit cad to usd in my non registered account.
Now, i got some 6 digit figure gift from my parents in USD and I was planning on converting majority of that into Cad and put it in my non registered Bmo investorline account.
I did this the other way around buying RBC usd stock and selling the RBC cad stock and it didnt seem like a smooth process but I cannot recall what was the issue as it was 5 years ago. I think i could not buy and sell online and the wait seemed to create a “loss”? or something along those lines. . Would you be able to explain what would be the con with doing it in reverse?
for the amount I need to exchange, i wonder if those currency exchange companies like VBCE is a better bet.
@cat – There’s no con with doing the gambit in reverse. Unfortunately, I don’t have any experience with the various currency exchange companies, so I can’t provide any feedback on which is the better option.
Is it recommended to use this method in a TFSA account? After transferring the money from CAD to US using the etf, I would like to use the funds to purchase some US based tech stocks
@David: Most investors use Norbert’s gambit in their RRSP to convert their loonies to dollars in order to purchase U.S.-based foreign equity ETFs. This can reduce product costs and unrecoverable foreign withholding taxes. It works in a TFSA as well (without the foreign withholding tax benefit), but I don’t recommend using the strategy to purchase individual US-based tech stocks.
Why would you say you don’t recommend converting CAD to USD to buy a tech stock like Amazon for example?
I am curious as I don’t see any issues with that approach.
@Dividend Earner – This is a passive investing blog. I don’t advocate buying single securities.
Thanks Justin for these tutorials – I’ve now tried this a few times to move USD (I used to work in the US) to CAD and it worked perfectly. Investorline even did the journaling within 12 hours so the account was cleaned up much quicker than I expected.
I ended up using interlisted stocks to avoid the phone-call and lower the bid-ask spreads – holding a big-5 bank stock for 5 minutes seemed like low-enough risk and I made sure I did it when there were no earnings announcements, dividend dates, etc.
I recall a few years back on the first CCP podcast where you referred to people finding Norbert’s Gambit “terrifying” to pull off and I can see why – a lot of small mistakes like selecting the wrong settlement fund or selling the wrong number of shares could be quite costly – I definitely triple-checked everything. The “phantom” gain/loss from currency fluctuations between transaction and settlement date (since my understanding is you’re supposed to use the exchange rate on settlement date) is also a bit annoying. But overall, this was a great money-saver!
@Graeme: Glad the gambit process worked well for you!
To change USD to CAD, do you just do the reverse? Call the trading desk and ask to buy DLR.U on the US dollar side of the account? Can you then sell DLR with the settlement in CAD without calling the trading desk?
When I try to buy DLR.U online on either the Canadian or US exchange, it says the symbol is invald.
Thanks.
@Julia: That’s correct – simply call BMO IL and ask them to purchase DLR.U on the US dollar side of the account (and ensure that they charge you the online commission rate).
Sometimes they will place the offsetting DLR sale trade in Canadian dollars for you as well (or you can do this online yourself).
These videos are great too bad no Questrade. If I was to complete a conversion using norbert’s gambit is there extra information I need to keep for tax purposes? I know in other articles I have read here and dans blogs it’s hands on but this seems pretty straight forward. Also is it worth someone who is just starting out to have US etfs in RRSP compared to Canadian in TFSA ? I would like to start to build a good foundation. Other articles say just keep it simple but to me it doesn’t seem complicated to keep US etfs in RRSP and Canadian in TFSA. Also bond etfs in RRSP. I will be using simple portfolios for both don’t wanna get crazy that but using two different country etfs in proper accounts doesn’t seem to complicated. Any tips would be advice would be great.
@Akshay Kalaria: I am working on a Norbert’s gambit video for Questrade – it should be released in the next month or so.
If you complete the Norbert’s gambit in a taxable account, you need to convert the purchase cost / sale proceeds or DLR.U to Canadian dollars using the Bank of Canada noon exchange rate on the settlement date of the trade. If you implement the gambit in an RRSP, there are no tax consequences.
I tend to hold US-listed foreign equity ETFs in RRSP accounts and Canadian-listed foreign equity ETFs in TFSA accounts. If you’re not comfortable using the Norbert’s gambit strategy in order to purchase US-listed foreign equity ETFs in an RRSP account, that’s fine too. Even my most aggressive model ETF portfolio (100% equities) would only have a foreign withholding tax / product cost drag of about 0.20% per year (if you didn’t hold the US-listed foreign equity ETF counterparts). For smaller RRSP accounts, the additional savings may not be worth the trouble.
Most investors tend to hold equity ETFs in their TFSA account, and any bond ETFs in their RRSP account.
I’ve done this a dozen or so times at BMO Investorline, the first few with DLR, and the remainder with RY (in Canada and the U.S.). It’s true that Investorline will clean up the positive and negative position, but always one business day late. This generates an interest charge that gets applied toward the end of the month. Investors who use this gambit in a cash account might not see this interest charge because Investorline says they don’t charge or pay interest of less than $5 in a month inn cash accounts.
@Michael James: Thank you for sharing your experience (it sounds like it is very similar to the process at RBC Direct Investing, where you generally have to call an RBC representative to reverse the debit interest charges).
@Michael:
By RY you mean Royal Bank, correct? So you by RY.TO and sell RY.NYSE? Do you need to ask for journaling? Sorry I’m just at the beginning of my journey :)
Thanks!