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Norbert’s Gambit at BMO InvestorLine

February 7, 2017 - 6 comments

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.

 

By: Justin Bender with 6 comments.
Comments
  18/04/2017 10:49:15 AM
Justin Bender
@brian: You just have to crunch the numbers to compare. DLR.U's current ask price is $9.95 USD, and DLR's current bid price is $13.29 CAD (for a rate of 1.3356783 from USD to CAD). This would turn your $500,000 USD into $667,839 CAD.

Your brokerage rate of 1.328514 would convert your $500,000 USD into $664,257.

Using Norbert's Gambit would save you about $3,582 - you need to decide whether it's worth the trouble.
 
  15/04/2017 9:07:40 PM
brian
I am wondering if norberts gambit is worth the time considering the highly competitive exchange brokerages. for example, I am needing to exchange 500k in us funds into cdn at a brokerage. present exchange is $1.33, I get the rate at 1.328514 (from us to cnd). they charge me 30bps or a "fee" of $1500 for converting that amount. very close to the interbank rate. would Norbert gambit actually save me money and be worth my time and effort?
 
  16/02/2017 11:15:46 AM
Justin Bender
@Ben: You can also use inter-listed stocks to implement the Norbert's gambit at BMO (such as Royal Bank on the TSX and Royal Bank on the NYSE). You do not need to call BMO for this transaction (the procedure is not exactly the same, but fairly close to the one in my tutorial).

If you use DLR/DLR.U instead, BMO's online system is not set-up to sell DLR.U, so a trader must be called to sell it for you.
 
  16/02/2017 10:46:51 AM
Ben
Can you confirm you still have to call with BMO IL? I'm reading in some places that you do and others that you don't. What's the deal?
Thanks
 
  13/02/2017 4:18:10 PM
Justin Bender
@Tim - you're very welcome. I don't have a QTrade account (I decided to stop opening accounts when I hit 7 brokerages ;) but this blog post might be useful: http://financialuproar.com/2015/04/29/how-to-cheaply-exchange-canadian-dollars-for-u-s-dollars-using-qtrade/
 
  13/02/2017 12:43:08 PM
Tim
Hi Justin, thanks for this ongoing series. As I see you are going through different brokerages, I would love a post on performing Norbert's Gambit using Qtrade.
 



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