Canada's Outlook Improves: ETFs In Focus

Canada’s strong business confidence reflects optimism in the economy as the country celebrates its 150th year. Moreover, Canada’s GDP grew for the sixth straight month as Statistics Canada reported a 0.2% increase in GDP in April compared with 3.3% in the year-ago period. The economy seems to be recovering from the harm caused by the global oil shock.

Per Bloomberg, 14 of the 20 sectors expanded, with mining and transportation and warehousing leading with a 2.7% and 1% increase, respectively.

The strength in the economy is indicative of possible monetary policy tightening by Bank of Canada for the first time since 2010. Swaps trading predict an 84% rate hike chance, and investors are betting that it might come as early as in the July 12 meeting (read: Canada Rate Hike in the Cards? ETFs in Focus).

Canada’s housing market cooled a bit in April as retail construction declined 0.9%, while broker and agent activity declined 0.6%.

Central Bank governor Stephen Poloz strongly favors a rate hike and his comments led to an increase in the Canadian dollar and bond yields.

Let us now discuss a few ETFs focused on providing exposure to Canadian equities (see all Canadian Equity ETFs here).

iShares MSCI Canada ETF (AX:EWC)

This fund is one of the most popular funds offering exposure to Canada. It is an appropriate bet for investors who are bullish on the overall performance of Canadian large cap firms.

The fund manages AUM of $3.04 billion and charges 48 basis points in fees per year. Financials, Energy and Basic Materials are the top three sectors of the fund, with 41.74%, 21.79% and 9.78% allocation, respectively (as of June 29, 2017). From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion Bank and Bank of Nova Scotia, with 8.26%, 7.20% and 5.60% allocation, respectively (as of June 29, 2017). It has returned 3.2% year to date and 10.89% in the last one year (as of June 30, 2017). EWC currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

SPDR MSCI Canada Quality Mix ETF QCAN

This fund targets exposure to large-cap companies in Canada. It is an appropriate bet for investors looking at gaining exposure to Canadian equities but at the same time avoiding the inherent risks that small cap investments bring.

The fund manages AUM of $36.27 million and charges 30 basis points in fees per year. Financials, Energy and Consumer Staples are the top three sectors of the fund, with 39.81%, 12.09% and 9.33% allocation, respectively (as of June 29, 2017. From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion Bank and Canadian Imperial Bank of Commerce, with 4.33%, 4.18% and 3.90% allocation, respectively (as of June 29, 2017). It has returned 5.45% year to date and 12.27% in the last one year (as of June 30, 2017). QCAN currently has a Zacks Rank #3 with a Medium risk outlook.

First Trust Canada AlphaDEX Fund FCAN

This fund is a relatively less popular and expensive means to gain exposure to Canadian equities.

The fund manages AUM of $5.75 million and charges 80 basis points in fees per year. Financials, Basic Materials and Consumer Discretionary are the top three sectors of the fund, with 32.88%, 14.21% and 12.01% allocation, respectively (as of June 29, 2017). From an individual holdings perspective, the fund has high exposure to Canadian Apartment Properties Real Estate Investment Trust, Industrial Alliance Insurance and Financial Services Inc and Manulife Financial Corporation, with 4.52%, 4.43% and 4.34% allocation, respectively (as of June 29, 2017). It has lost 0.22% year to date and 0.01% in the last one year (as of June 30, 2017). FCAN currently has a Zacks Rank #3 with a Medium risk outlook.

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