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The Canadian ETF Outlook

Written By Brian Hicks

Posted December 28, 2009

Publisher’s Note: For information on how to purchase stocks that trade on Canadian stock exchanges, visit our resource page How to Buy Canadian Stocks.

Here in Montréal, the holiday shopping frenzy seems to come a little late.

French-speaking Canadians and Anglophones alike bide their time in December, while Americans shop like chickens with their heads cut off from Thanksgiving through to Christmas.

Why? Well, Canada’s British colonial past left a Yuletide tradition here as in Australia, New Zealand, and of course the U.K. itself. It’s called Boxing Day, and if you get in the door to your favorite store early enough, you can enjoy discounts of up to 70% on top-shelf goods.

One Québécoise I saw interviewed on Boxing Day, which falls on the day after Christmas, put it this way: “I bought little gifts before Christmas,” she said, “but I waited until today to get the big gifts.” She was talking about flat-screen TVs and the Nintendo Wii, and even designer clothes that fill Montréal’s many boutiques.

It’s a smart way to shop, really, and hopefully your loved ones would be proud to know that you didn’t go into debt up to your eyeballs just to check something off their wish lists.

And heading into another year of economic uncertainty, many retailers are going all-out with prolonged Boxing Week sales that will carry over into 2010.

Whether you’re Canadian or not, you can grab shares of plays on Canada’s investment trends for the new year.

Here’s what I’m looking at…

Keep Those Stockings Stuffed With Canadian Stocks During Boxing Week

Canadian stocks have traditionally been the most prominent and accessible of all non-U.S. shares on Wall Street. These days, that includes a bunch of easy-access offerings like the iShares MSCI Canada Index ETF (NYSE: EWC).

EWC is an exchange-traded fund that allows you to invest heavily in the natural resources that have padded Ottawa’s national coffers and helped the Canadian dollar soar against the greenback in recent years. More about the Canadian “loonie” in a moment…

The index fund includes many companies that are listed individually on the NYSE. If you look at them one by one, you can see why EWC holders have enjoyed a 55% return since the beginning of 2009 and more than doubled the S&P 500’s run during the same period, as shown in the chart below:

EWC Canadian ETF vs. S%26P 500

  • Toronto’s Barrick Gold (NYSE: ABX) rose and fell more or less with the price of gold as represented in the SPDR Gold Trust ETF (NYSE: GLD). ABX is dipping right now and could be a nice Boxing Week bargain on its own and as part of EWC.
  • Oil and natural gas explorer Canadian Natural Resources (NYSE: CNQ) is up 77% in 2009.
  • Fertilizer giant Potash Corp. of Saskatchewan (NYSE: POT) was downgraded to “hold” by TD Securities on December 23, with a $95 price target giving you reason to wait (it’s currently at just over $112). The long-term case for fertilizer stocks given water and food shortages remains strong, so keep an eye on Potash Corp.
  • Finally, natural gas producer Encana (NYSE: ECA) moves hydrocarbons from its Calgary headquarters, and the stock just split to current levels near $33.

All of those are large-cap companies with large share price changes that have affected the EWC Canada ETF more broadly over the past year. Because of its holdings, that index fund is outperforming the S&P TSX benchmark by a sizable margin—the Toronto leaderboard has only gained 30% compared to EWC’s 55% in 2009.

How about some smaller swings in Canadian trades you can access on Wall Street?

For that, we’ll turn to a currency-based ETF that capitalizes on the rise in the Canadian dollar.

Playing the Canadian Dollar with Rydex CurrencyShares

Yesterday I saw Prime Minister Stephen Harper answering questions on CBC national news. One of the first questions his interviewers posed had to do with Canada’s national balance sheet. Specifically, are Canada’s zero interest rate policy (ZIRP) and national debt dangerous?

As Harper responded, Canada’s current-account balance as a percentage of economic output is not in dire territory. It’s -2.7%. The United States, by comparison, is at -3.1% of GDP. Greece, which is reeling right now, has a -6.6% account balance.

Though that spread is small, the Canadian dollar (affectionately known as the “loonie” because of the bird on the $1 coin) is up significantly against the U.S. dollar over the past year. 

If you consider a currency to be like a country’s share price, you should definitely take a look at a line of currency-based ETFs offered by Rydex, called CurrencyShares.

This graph shows the CurrencyShares Canadian Dollar Trust (NYSE: FXC) vs. the PowerShares US Dollar Index Bullish ETF (NYSE: UUP) and the United States Oil Fund, an exchange-traded fund that aims to capture the movement of crude oil prices (NYSE: USO).

Canadian Dollar ETF Chart

The clear loser here is the dollar, which sags next to the loonie and black gold.

I’m heading to Québec City today, leaving English and my U.S. dollars behind.

Here’s to a new year of health and wealth for you, wherever you are!


Sam Hopkins
Sam Hopkins
International Editor

P.S. – Of course most Canadian stocks are available on the Toronto and Vancouver stock exchanges, and you’ll hear plenty about resource companies on those markets in 2010. Stay tuned!