While the Canadian economy has been knocked around this year, largely due to the falling crude oil prices, investors should not count out Canada country-specific exchange traded funds.
Canadian equities are heavily skewed toward the energy sector, which has weighted on the overall market. For instance, the iShares MSCI Canada ETF (NYSEArca: EWC), which includes a 21.6% tilt toward energy companies, has dipped 1.4% year-to-date. EWC is currently trading below its 200-day simple moving average but has found support on its short-term, 50-day average.
Additionally, the First Trust Canada AlphaDEX Fund (NYSEArca: FCAN), which employs growth and value screens to select holdings, was down 0.8% so far this year while the SPDR MSCI Canada Quality Mix ETF (NYSEArca: QCAN), which includes value, quality and low volatility screens, fell 2.3%.
The Bank of Canada has been a reliable arm in guiding the Canadian economy, writes Luke Kawa for Bloomberg. For instance, the central bank was among the first to adopt a formal inflation target and has enjoyed success in achieving its targets. [Canada ETF Back on Track with Economy Recovering]
The country also enjoys large natural resource reserves. As we have witness, Canada’s oil production could either lift or weigh on the economy, depending on the energy market. Additionally, as we hear more about droughts and dry weather conditions, Canada’s freshwater reserves, which account for 20% of the world’s freshwater, could come into play.
Financial names make up some of the top holdings in the Canada ETF portfolios. For instance, the sector makes up 38.0% of EWC and 33.8% of QCAN. FCAN holds a smaller 13.0% tilt toward financials and overweights 28.7% energy.
Some observers have warned of a bubbling real estate sector, and traders have bet against Canadian real estate through shorting Canadian banks. In the meantime, the national median home price continues to climb to all-time highs. We will have to monitor how the government plans to engineer a soft landing for the real estate market in an attempt to mitigate a potential fallout.
Canada is also home to some booming healthcare names, including Valeant Pharmaceuticals International (NYSE: VRX), which makes up 5.7% of EWC. VRX hit a new lifetime high Thursday.
Looking ahead, Canada’s market could experience further volatility around the October elections as political runners plan the future of the country’s infrastructure development, access to markets and climate policy over the next five years.
For more information on Canada, visit our Canada category.
Max Chen 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.