Fueled by its resource-rich base, Canada’s outlook is bright. And it’s an especially good choice for the market that just won’t quit… while inflationary pressures are mounting, asserts Genia Turanova, dividend investing expert and editor of Unlimited Income.
As always, diversification is key. But thanks to this exchange-traded fund (ETF), we can own a piece in some of the largest and most important Canadian companies with just one trade.
iShares MSCI Canada ETF (EWC) targets exposure to the Canadian stock market. With EWC, you’ll have a stake in as many as 90 mid- and large-cap Canadian companies.
Financials are the largest sector in the ETF, while Energy and Materials (Nos. 2 and 3 by size) together account for nearly a quarter of the ETF. Infotech and industrials round out the top five industries, with about 10.5% each.
Canada is one of the richest countries in the world in terms of mineral resources. It’s the largest crude oil power in North America, and its total oil reserves make it No. 3 in the world.
And it leads in many other resources, too. Canada ranks in the top five producing countries for 13 major minerals and metals. Minescanada estimates the country is:
- First in potash
- Second in uranium and niobium
- Third in nickel, cobalt, aluminum and platinum group metals
- Fifth in gold and diamonds
Plus, it’s a global leader in environmentally responsible and sustainable mining.
The interest in sustainable mining is going to increase, with consumers, businesses and regulators paying more and more attention to the way mining operations are conducted and whether modern techniques are used. And Canada’s leadership here bodes well for the future.
And even though EWC isn’t entirely composed of energy and materials stocks (these two commodity sectors account for about 25% of the fund), these two sectors are important for Canada’s GDP and have a large impact on both the ETF and the overall economy.
Historically, EWC has done much better when commodities have rallied — and underperformed when commodities were in a downtrend.
Meanwhile, financial companies are the largest sector in EWC. In fact, financials’ weighting in the ETF is larger than the next three sectors combined. The good news here is that Canadian banks are in good shape. With the economy picking up, loan losses are on the decline and margins are on the rise.
Valuation for EWC also looks attractive, especially compared to the leading U.S. indices. On a trailing 12-month basis, EWC trades at about 20x earnings. Compare this to 37.2x for the S&P 500 or 36.1x for the Nasdaq 100. Better yet, EWC yields about 1.7%, vs. 1.4% for the S&P 500.