Canada ETF: Developed Market, Commodity Exposure

January 27th at 8:25am by Tom Lydon

Canada’s single country exchange traded fund can offer a portfolio stable diversification benefits that also maintains exposure to natural resources and commodities from a developed nation.

“Unusually for a developed nation, Canada is a major commodity exporter. It’s confirmed oil reserves, including oil sands, are second only to Saudi Arabia, and it’s a major producer of minerals, natural gas and agricultural commodities,” John Gabriel wrote in an analyst report on Morningstar. “However, owing to its tight economic integration with the United States, over the past 40 years, its monthly correlation to the U.S. stock market was around 0.74. In recent years, commodities have started playing a bigger role and its trailing three year correlation to the GSCI, a major commodity index, spiked up to 0.80.”

Canada is a world leader in production of zinc, nickel, potash, gold, copper and lead and the country is a leading exporter of forest products. Furthermore, the country is a net exporter of energy. This all supports the fact that Canada has maintained its AAA credit rating throughout the global slowdown, reports Neena Mishra on Zack’s. [ETF Chart of the Day: Canada]

According to the IMF, Canada will grow 1.7% in 2012, followed by a 2% growth rate in 2013. As fiscal problems in the Eurozone continue, there are not many choices left for investors that want exposure to a developed market. [Canada ETF Falls With Gold Miner Stocks]

Yet the Eurozone debt crisis is one of the major threats to the Canadian economy, as well as growing domestic household debt. The latter is one of the largest threats to the Canadian banking system at this time, reports Mishra. [Canada ETF Supported by Commodities]

Meanwhile, a recent ETF outlook study by the Bank of Montreal found that capital is expected to continue to keep trickling into Canadian ETFs. More product launches and industry consolidation will support this, reports Evelyn Juan for Dow Jones Newswire.

“Some of the newer ETFs will likely create further price competition,” the outlook said. Plain-vanilla market-capitalization funds will be displaced by alternative, less expensive ETFs in the long run.

Some Canadian ETFs trading in the U.S. :

  • iShares MSCI Canada Index (NYSEArca: EWC)
  • IQ Canada Small Cap ETF (NYSEArca: CNDA)

iShares MSCI Canada


Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tickers

CNDA EWC