For Canadian investors, caution should be exercised when trading international ETFs. Asian and Australian markets are not open during our trading hours, which results in an incomplete price discovery mechanism for a significant portion of stocks held by the ETF.
So what is an investor to do?
The best option would be to trade during the open market hours where the majority of international stock exchanges overlap the U.S. stock exchange.
In the table below, I’ve illustrated the overlap in market hours for a number of global stock exchanges (shaded in dark grey). Using the Vanguard International Stock Market ETF (VXUS) and the Vanguard FTSE All-World ex-US ETF (VEU) as examples, you can see that approximately 55% of the country stock exchanges represented in the ETFs overlap the U.S. exchange between 9:30 am and 11:30 am (ET).
World Stock Market Trading Hours: 9:30 AM – 4:00 PM (ET)
Sources: World Federation of Exchanges, Vanguard Group as of March 31, 2012
Although not a perfect solution, the following “rules of thumb” could be considered for Canadian investors transacting in International ETFs:
Rules of Thumb