An investor holds a Canadian equity ETF that invests directly in US companies. To mitigate the risk of CAD appreciation reducing their returns when converting back to CAD, they would typically consider an ETF with which characteristic?

Question: An investor holds a Canadian equity ETF that invests directly in US companies. To mitigate the risk of CAD appreciation reducing their returns when converting back to CAD, they would typically consider an ETF with which characteristic?

Answer options:

• An unhedged US equity ETF ✅ A currency-hedged US equity ETF
• A Canadian equity ETF investing in Canadian companies
• An inverse currency ETF

Correct answer: A currency-hedged US equity ETF

Explanation: A currency-hedged ETF aims to neutralize the impact of currency fluctuations between the underlying investments' currency (USD) and the investor's home currency (CAD). If the CAD appreciates, an unhedged investment's value expressed in CAD decreases, so hedging protects against this specific risk.