Vanguard Plans ETF With Canada Exposure

It's no wonder that investor interest in Canada has been piqued, given the strong performance of the Canadian stock market over the past three years. Since January 2003, the S&P/TSX Composite Index, which includes the largest companies on the Toronto Stock Exchange, has risen about 90%.

The Canadian market isn't without its risks, however. If you look at the prior three years, from January 2000 to January 2003, the S&P/TSX Composite Index was down 23%.

Greg Newton, who runs the Naked Shorts blog, says that investors who include Canada in their portfolios are basically making a play on commodities. And given the way the commodity markets have blow up this week, he says, Canadian equities likely won't be far behind.

While 5% may seem like a relatively small allocation, it can make a huge difference in the performance of an index, according to Matthew Hougan, senior editor of the Journal of Indexing and Web site IndexUniverse.com. He notes that Exxon(XOM Quote), the largest component in the S&P 500, only has a weighting of 3.4%.

Even actively managed funds rarely allocate more than 5% to a single stock. "It's larger than the largest stock position in just about any sensible mutual fund," Hougan says. "No portfolio manager would forfeit a 5% position on a whim, and neither should index investors."