Canada Equity ETFs Worth A Look - ETF News And Commentary
January 25 2012 - 5:29AM
Zacks
Time to look at Canada Equity ETFs? Yes, if you are looking to
invest in a safe developed economy, to add some global
diversification to your stock portfolio.
An internationally diversified portfolio should have exposure to
both emerging markets and developed markets. (Read Create a
Diversified Portfolio Using ETFs). With ongoing problems in the
Eurozone, there are not many choices left in the developed world
outside of US. The International Monetary Fund (IMF) yesterday cut
its growth forecast for most advanced economies, for this year and
the next year, citing “intensifying strains in the euro area"
weighing on the global outlook. Per IMF, Canada’s economy will grow
1.7% in 2012 and 2.0% in 2013. While the growth estimates are lower
than those put out by the Bank of Canada (2.0% and 2.8%
respectively), just about a week back, they are still among the
highest in the developed world. After the recent downgrade by the
Standard & Poor's, Canada is now one of few countries left with
AAA credit rating.
Canada is a world leader in production of gold, zinc, nickel,
potash, cadmium, copper and lead. With its vast natural resources,
it is also one of the largest exporters of forest products,
agricultural commodities and a net exporter of energy.
Our northern neighbor has a sound financial system, a relatively
steady political system and a strong government balance sheet.
(Also read Is It Time To Buy The New Zealand ETF?)
Bank of Canada estimates that the Canadian economy grew by 2.4%
in 2011 and projects that it will grow by 2.0% in 2012 and 2.8% in
2013. Core inflation and longer term inflation expectations remain
consistent with the 2% inflation target of the Central Bank.
Canada’s banks are well managed, well regulated and well
capitalized. The World Economic Forum has ranked Canada’s banking
system as the most sound in the world, four years in a row. As
a result of stringent regulatory norms and conservative lending
practices, the Canadian banks had emerged largely unscathed from
the global financial crisis. This is important since the ETFs
mentioned below are heavily invested in the financial sector in
Canada.
Main challenges to the Canadian economy emerge from the events
in Europe and slowdown in China. On the domestic front, growing
household debt poses some threat to the health of the banking
system.
Here is an introduction to three popular Canada equity ETFs:
iShares MSCI Canada Index (EWC)
The ETF tracks the performance of MSCI Canada Index. Created in
1996, the ETF is heavily weighted towards financials (32.67%),
followed by energy (27.09%) and materials (20.41%). With assets
totaling ~$4.8 billion, and average volume of 2.5 million, this is
the most liquid and easy to trade Canada Equity ETF.
db-X MSCI Canada
Currency Hedge (DBCN)
This fund provides access to Canada with a built-in hedge
against currency fluctuations. It tracks MSCI Canada US Dollar
Hedged Index, which hedges Canadian dollars to the U.S. dollar by
selling Canadian dollar currency forwards at the one-month forward
rate. Due to hedging, this fund underperforms other Canadian ETFs,
when the Canadian currency rises against the US dollar and
outperforms when the Canadian dollar depreciates against the US
dollar. Further by hedging currency risks, it also takes away the
benefits of currency diversification associated with International
investing.
IQ Canada Small Cap ETF (CNDA)
This ETF tracks the IQ Canada Small Cap Index, which is a rule
based, modified capitalization weighted, float adjusted index of
the small capitalization sector of publicly traded
companies in Canada.
The fund is largely comprised of materials (45.71%) and energy
(27.35%) stocks and hence can be used as an indirect play on the
commodities and even emerging markets (since the demand for
commodities in growing mainly in the emerging markets).
|
EWC
|
DBCN
|
CNDA
|
Assets
|
$4.79 B
|
$4.69 M
|
$31.79 M
|
Expense Ratio
|
0.52%
|
0.51%
|
0.69%
|
Avg. Volume
|
2.5 M
|
5457
|
8596
|
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