US ETF breakeven calculator

US ETF breakeven calculator

The calculator tries to estimate the breakeven point between an US-based ETF and a Canadian equivalent. The default case is iShares' S&P 500 index funds. IVV is the US-based fund. The Canadian-based XSP holds IVV shares, but also hedges against $US currency risk, and measures itself against the slightly different S&P 500 CAD-Hedged index. Calculating the US/CDN ETF breakeven point as per Canadian Couch Potato's article and spreadsheet involves the currency conversion costs of buying $US-dollar ETF, and the US withholding tax lost by Canadian-based ETFs when held in an RRSP. The grey line on the calculator's results table shows the year that all these start to work in favor of the US-based ETF.
However, in the real world there are fluctuations in exchange rates, which can cause the US ETF advantage to evaporate (or, of course, grow larger). The "Cushion" column estimates the exchange rate the Canadian dollar would have to reach before the US ETF advantage is completely lost. Also, hedging used by the Canadian-hedged funds is imperfect and imposes a cost (check out Canadian Capitalist's article which describes an academic paper on currency-hedging of US equity index funds). You can use the calculator's Advanced Options to include these costs by turning on the RCE and/or Other Drag options and supplying values.

held in RRSP?
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Initial Lump Sum $ Annual Contribution $
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Capital Gains (%) Dividend (%)

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Foreign Exchange cost (%):
Annual & Dividends Initial Lump
CAD->US rate:

RCE(%) Other drag(%)
US MER(%) CDN MER (%)
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The US ETF has an annual advantage of %BasisDifferenceStr% basis points (%BasisDifferencePercentStr%%).

	US						CAD						Cushion
Year	Year End before costs	Forex on Dividends	MER $	IRS Withholding	Year End after costs	Year End Value in $CAD	Year End before costs	IRS Withholding	MER $	RCE $	Year End after costs	Difference	%	$CAD

Notes and Caveats:

As always, Ravens are not financial experts and the any information here should be treated with caution.
If not in an RRSP, there is a 15% hit on dividends due to witholding tax by the IRS. The calculator takes this into account. However, you can claim a tax credit on your Canadian tax return, so some or all of this money may eventually return to you. Eventually the calculator may have an option to "reinvest" this amount the next year, but right now it leaks out and reduces the apparent value of the ETF. A US ETF does not pay the IRS withholding if held in an RRSP. A Canadian ETF holding US ETF shares (as XSP does), when held in an RRSP, cannot flow through the tax credit to you and this amount is lost permanently and is an extra cost on the Canadian ETF when held in an RRSP.
The "Cushion" rate for $CAD is based on the current exchange rate, which works for a single lump sum purchase now. If you are using the Annual Contribution option it is less accurate, as you would have to adjust it by the difference between the current rate and the weighted average rate of all your annual purchases.
The constant return and dividend projections are of course not typical of the real world, and especially for short time frames should not be treated as the likely actual performance of the ETFs.