Bank Of Canada Keeps Interest Rates Unchanged: ETFs In Focus

The central bank of Canada kept interest rates intact, as uncertainties relating to trade and high household debt levels remain an overhang on the economy. Policymakers stated that the three parties in NAFTA are close to a deal but uncertainties remain, as President Trump’s statement on there being no timeline for NAFTA talks continue to bother the markets.

Into the Headlines

Bank of Canada governor Stephen Poloz kept the benchmark interest rate steady at 1.25%. Canada’s annual pace of inflation increased 2.2% in February, the highest in more than three years and above the central bank’s 2% target, per Statistics Canada. Moreover, February’s reading was well above 1.7% reported in the prior month.

Despite inflation numbers hinting at chances of faster rate hikes by the Bank of Canada, policymakers stated that they are in no rush to tighten monetary policy. Canada’s central bank has hiked prime rates thrice since July 2017 even though it is fighting trade uncertainty with its neighbor — the United States.

The central bank governor stated that rates will eventually rise, once the headwinds reduce. Stephen Poloz has been tasked with keeping Canadian inflation in check, while also tightening monetary policy to normal levels, in line with the rest of the developed world.

According to the latest Monetary Policy statement, the Canadian economy grew 1.3% annually in the first quarter. However, the central bank expects the economy to rebound in the second quarter with 2.5% growth.

“The economy is in a good place,” per a Bloomberg article citing Poloz. He added, “[However,] there is a long list of things that are in the background preventing the economy from getting all the way where it is today all by itself.” Hence, the overall sentiment about the economy remains positive and rates might be hiked in the coming months. Economists anticipate two hikes this year, taking the benchmark interest rate to 1.75%.

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

iShares MSCI Canada ETF (AX:EWC)

This is one of the most popular funds offering exposure to Canada. It is a perfect bet for those who are bullish on the overall performance of Canadian large-cap firms.

The fund manages AUM of $2.7 billion and charges 49 basis points in fees every year. Financials, Energy and Basic Materials are the top three sectors of the fund, with 41.4%, 21.3% and 10.7% allocation, respectively. From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion Bank and Bank of Nova Scotia, with 8.2%, 7.5% and 5.3% allocation, respectively. It has returned 8.1% in a year. EWC has a Zacks ETF Rank #3 (Hold), with a Medium risk outlook.

SPDR MSCI Canada Strategic Factors ETF QCAN

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

The fund manages AUM of $41.1 million and charges 30 basis points in fees per year. Financials, Energy and Consumer Staples are the top three sectors of the fund, with 39.9%, 12.8% and 9.6% allocation, respectively. From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Canadian Imperial Bank of Commerce and Toronto Dominion Bank, with 4.2%, 4.0% and 3.9% allocation, respectively. It has returned 10.1% in a year. QCAN has a Zacks ETF Rank #3, with a Medium risk outlook.

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