Why Canada Is a Big Winner

07/20/2010 1:00 pm EST

Focus: FUNDS

Richard Young

Editor, Young's Intelligence Report

Richard C. Young, editor of Intelligence Report, says our northern neighbor has strong banks, extensive natural resources, and a free, competitive economy.

I have consistently [recommended] the iShares MSCI Canada Index Fund (NYSEArca: EWC).

Due to the conservative nature of its banks, Canada did not have a banking crisis in 2008. Canada's banks hold their residential mortgages. They do not sell them or repackage mortgages for securitization. And Canada's residential bankers require a proper down payment and want to get to know their borrowers. The big Canadian banks are a foundation of my Canadian ETF and help to make this fund a most suitable investment in today's hostile environment.

Canada, like Russia, is filled with abundant mineral and timber wealth, as well as top-tier oil and natural gas resources. But 33 million Canadians produce nearly as much GDP every year as 142 million Russians. In 2008, every Canadian produced nearly four times as much as each Russian. But resources alone aren't enough to make a country an attractive investment. Its political system must be strong, too. The Heritage Foundation's Index of Economic Freedom lists Canada as number seven. To finish the comparison above, Russia ranked 143rd.

Canada is the United States' top import and export partner. Oil sands and natural gas from Canada will always find a market in the US. Canada is known as the Saudi Arabia of oil sands and today is America's largest supplier of imported oil. Canada's resource export success isn't tied to the US alone. During 2009, Canada geared up its exports across the Pacific to resource-hungry China and Singapore.

For all its mineral and natural resource wealth, Canada is not simply a nation of miners and loggers. Canada's education system is one of the best in the world. According to the OECD, Canada's students perform third best in the world in science, fourth best in reading, and seventh best in mathematics. Canada is also home to a disproportionate share of the world's best universities, including McGill, University of Toronto, and the University of British Columbia—each ranked in the world's top 50 universities by US News and World Report.

Combine excellent resource wealth with a strong financial system, great education, and a free economy built on a strong democratic system, and you get an attractive investment environment.

Canada's 2010 budget promises the lowest corporate tax rate in the G-7 by 2012. The current rate of 22.12% will be reduced to 15% by 2012, making Canada much more competitive. Look for a flood of American companies to cross the border, along with their capital investments, to take advantage of the lower tax rates.

If you don't already have a position in iShares MSCI Canada, initiate one today. (It closed around $25.50 Monday—Editor.)

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