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Norbert’s Gambit at TD Direct Investing

March 6, 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.

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.

Note: TD Direct Investing began offering US dollar RRSP accounts shortly after our white paper was published, so please refer to the video tutorial below for the updated Norbert’s gambit procedure.


By: Justin Bender with 6 comments.
  16/05/2017 4:20:22 PM
Justin Bender
@Barry: Holding XAW would have similar foreign withholding tax implications as holding US, international and emerging market equity US-listed ETFs (with the exception of international equities, as XAW holds XEF, which holds the underlying stocks directly and is therefore more tax-efficient than holding IEFA in a taxable account).

The main benefit of holding US-listed ETFs in a taxable account would be their lower expense ratios (but you have to weigh that benefit against the complexity and cost of converting CAD to USD).

In an RRSP account, the benefits are relatively large (if you properly use Norbert's gambit to convert your CAD to USD). In a taxable account or TFSA account, the benefits are smaller (I generally do not hold US-listed ETFs in TFSA or taxable accounts).
  16/05/2017 3:05:45 PM
Mardi's question: I assume you could benefit on the exchange rate by using this technique, in either a registered or non-registered account. I think that is what she is asking about. The withholding tax issue is a separate one.
  20/03/2017 12:53:33 PM
Justin Bender
@mardi: The benefits of reducing the foreign withholding tax drag is more relevant in RRSP accounts (in TFSA accounts, holding US-listed ETFs does not avoid the problem, and in taxable accounts, the foreign withholding tax drag is similar - with the exception of holding Canadian-listed international equity ETFs that hold the underlying stocks directly).

For more detailed information, I would recommend reading our white paper on the subject of foreign withholding taxes:
  19/03/2017 4:56:53 PM
You say your calculations are based on the assumption that the ETFs are being held in either a tax-deferred or tax-free account. What if XAW is held in an open account--Canadian or US?
  14/03/2017 10:32:13 AM
Justin Bender
@David Scott: If you haven't watched the YouTube tutorial above, it walks you through the updated step-by-step process.
  09/03/2017 9:43:16 AM
David Scott
Hi Justin,
Re Norberts Gambit for TD, TD DI does allow you to have US cash in registered accounts now. How does this change the process for Norberts Gambit? Sorry, I'm new to this technique, don't fully understand it yet and I would appreciate your help with NG given the change at TD.

Thank you in advance,
David Scott

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