Keep an Eye on Canada ETFs After Country’s GDP Falls 8.2%

Canada’s first-quarter gross domestic product (GDP) data showed that the impact of COVID-19 is beginning to reflect in economic activity. As such, investors may want to keep an eye on Canada ETFs as a potential value play when the country’s economy staves off the effects of the pandemic.

“Canada’s gross domestic product, or the broadest measure of goods and services produced in an economy, fell at an 8.2% annualized rate in the first quarter, to 2.10 trillion Canadian dollars ($1.53 trillion), Statistics Canada said Friday. Markets were looking for an annualized drop of 9%, according to economists at Bank of Nova Scotia,” a Wall Street Journal report noted.

“The record quarterly decline in Canadian economic activity occurred in the first quarter of 2009, or the height of the last global recession, when output fell 8.7% annualized. Economists expect the record to be broken in the second quarter, with some analysts calling for a contraction of up to 45% in the April-to-June period,” the report stated further.

“It is clear the data will get much worse,” said Stephen Brown, economist for forecasting firm Capital Economics.

A few Canada ETFs to watch:

  • iShares MSCI Canada ETF (EWC): seeks to track the investment results of the MSCI Canada Custom Capped Index. The underlying index is designed to measure broad-based equity performance in Canada. The underlying index uses a capping methodology to limit the weight of any single issuer to a maximum of 25% of the underlying index. The underlying index will include large- and mid-capitalization companies and may change over time.
  • Invesco Currency Shares Canadian Dollar (FXC): seeks to track the price of the Canadian Dollar, net of trust expenses. The fund seeks to reflect the price of the Canadian Dollar. The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market.
  • JPMorgan BetaBuilders Canada ETF (BBCA): seeks investment results that closely correspond, before fees and expenses, to the performance of the Morningstar® Canada Target Market Exposure IndexSM. The underlying index is a free float-adjusted market capitalization weighted index which consists of stocks traded primarily on the Toronto Stock Exchange. The fund may invest up to 20% of its assets in exchange-traded futures and forward foreign currency contracts to seek performance that corresponds to the underlying index.

Back in the U.S., the GDP contracted 4.8%, which is obviously comparatively smaller to Canad’s decline. This also creates an opportunity for investors to capitalize on the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI).

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