Top 5 Canadian ETFs

NEW YORK ( ETF Digest) -- When investors think of Canada, thoughts immediately turn to natural resources and that's always been logical. Basic commodities from the country include timber, base and precious metals, grains and energy. Canada has an abundance of all these.

The country has an educated population, great cities and a good basic infrastructure. Importantly one thing separating the country from the U.S. is a much more stable financial sector. In this, Canadian banks and other financial institutions avoided much of the financial mess incurred by other global banks including the U.S.

As a result the country's currency, "the Loonie" as it's affectionately called, has strengthened from its long-standing discount to the U.S. dollar. But, this has been a two-edged sword for Canadian exporters. Ask most Canadians about the currency and they beam with pride about its recent rally. It makes tourism to the south cheaper especially for snow birds heading south to Arizona and Florida. But manufacturers and exporters aren't keen on this event preferring a cheaper Loonie.

The Canadian stock market is getting deeper and within the country ETFs have grown. However, U.S. listed ETFs with a Canadian focus, beyond the single-country fund, have just recently begun to appear. Small-Caps and a few natural resource plays are in evidence but we have yet to see financials, and consumer sectors for example to appear. This will change in time and perhaps our list will continue to expand from a handful to a more comprehensive sector listing.

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

#5: iShares Canada Small Cap ETF (EWCS)

EWCS follows the MSCI Canada Small Cap Index which is designed to measure the performance of equity securities of small-capitalization companies, whose market capitalization, as calculated by the index provider, represents the bottom 14% of the Canadian securities market. Component companies include energy, financial and materials companies. The component companies may change over time.

The fund was launched in January 2012. The expense ratio is .59%. AUM (Assets under Management) equal $5.3 million and average daily trading volume over the short 3 month history is less than 5K shares. We feature this ETF given the marketing power of iShares which should establish itself as the largest in the sector over time. The YTD return for the first 2 plus months of 2012 was -3%.

Data as of First Quarter 2012

EWCS Top Ten Holdings & Weightings
  1. SXC Health Solutions Corporation (SXCI): 1.92%
  2. Provident Energy Ltd. (PVX): 1.40%
  3. Detour Gold Corporation (DGC): 1.31%
  4. Keyera Corp (KEY): 1.31%
  5. Methanex Corp Common Stock Npv: 1.26%
  6. Quadra FNX Mining Ltd (QUX): 1.25%
  7. AuRico Gold Inc (AUQ): 1.19%
  8. Lundin Mining Corp (LUNMF): 1.18%
  9. AltaGas Ltd (ALA): 1.17%
  10. Trican Well Service, Ltd. (TOLWF): 1.15%

(There is no meaningful chart for posting now given the short history.)

#4: IndexIQ Small Cap Canada ETF (CNDA)

CNDA follows the IQ Canada Small Cap Index which is a market cap-weighted index that seeks to provide investors with a means of tracking the overall performance of the small capitalization sector of publicly traded companies domiciled and primarily listed on an exchange in Canada.  The fund was launched in March 2003.

The expense ratio is .69%. AUM equal $34 million and average daily trading volume is 10K shares. As of early March 2012 the annual dividend yield is 1.07% and YTD return 12.75%. The one year return was -22.97%.

Data as of First Quarter 2012

CNDA Top Ten Holdings & Weightings
  1. Open Text Corporation (OTEX): 2.90%
  2. Provident Energy Ltd. (PVX): 2.69%
  3. TMX Group, Inc. (TMXGF): 2.67%
  4. Methanex Corporation (MEOH): 2.40%
  5. Quadra FNX Mining Ltd. (QUX): 2.38%
  6. CAE, Inc. (CAE): 2.28%
  7. AuRico Gold Inc (AUQ): 2.26%
  8. AltaGas Ltd. (ALA): 2.25%
  9. Trican Well Service, Ltd. (TOLWF): 2.21%
  10. Progressive Waste Solutions Ltd (BIN): 2.02%

 

#3: Global X Canadian Preferred ETF (CNPF)

CNPF follows the Solactive Canada Preferred Index which tracks the performance of a select group of preferred stocks from Canadian issues that trade on the TSE. The Underlying Index is comprised of preferred shares that meet certain criteria relating to size, liquidity, issuer rating, maturity and other requirements as determined by Structured Solutions AG.

The fund was launched in May 2011. The expense ratio is .58%. AUM equal $13 million and average daily trading volume is 16K shares. As of early March 2012 the annual dividend yield is 2.48% and YTD 4.34%. The one year return is not yet available but the 6 month return is 1.70%.

Data as of First Quarter 2012

CNPF Top Ten Holdings & Weightings
  1. Transcanada Pfd: 3.74%
  2. Manulife Finl Pfd: 3.11%
  3. Toronto Dominion Bank Pfd: 2.85%
  4. RBC NCP 1st-AV: 2.81%
  5. Bank of Montreal Pfd: 2.78%
  6. Royal Bank Of Canada: 2.71%
  7. TDB NCP-A-AG: 2.63%
  8. TDB NCP-A-AK: 2.46%
  9. Royal Bank Of Canada Pfd: 2.42%
  10. Bank of Nova Scotia Pfd: 2.39%

 

 

#2: Guggenheim Canadian Energy Income ETF (ENY)

ENY follows the Sustainable Canadian Energy Income Index which is comprised of approximately 30 stocks selected, based on investment and other criteria, from a universe of companies listed on the Toronto Stock Exchange, NYSE AMEX, NASDAQ or NYSE. Stocks are selected using criteria as identified by Sustainable Wealth Management, Ltd, the Fund's index provider, from a universe of companies including over 25 TSX listed Canadian royalty trusts and 20 oil sands resource producers that are classified as oil and gas producers.

The Index is designed to combine the most profitable and liquid Canadian royalty trusts with the most highly focused and fastest growing oil sands producers using a tactical asset allocation model based on the trend in crude oil prices. The fund was launched in July 2007. AUM equal $117 million and average daily trading volume is 52K shares. As of early March 2012 the annual dividend yield is 2.60% and YTD return 7.95%. The one year return was -20.38%.

Data as of First Quarter 2012

ENY Top Ten Holdings & Weightings
  1. Canadian Oil Sands Ltd (COS): 6.27%
  2. Baytex Energy Corp (BTE): 5.23%
  3. PetroBakken Energy Ltd. Class A (PBN): 4.84%
  4. Husky Energy, Inc. (HUSKF): 4.79%
  5. Provident Energy Ltd. (PVX): 3.93%
  6. Penn West Petroleum Ltd (PWE): 3.58%
  7. Gibson Energy Inc (GBNXF): 3.52%
  8. Suncor Energy Inc (SU): 3.51%
  9. Crescent Point Energy Corp (CPG): 3.50%
  10. Vermilion Energy, Inc. (VET): 3.46%

 

#1: iShares Canada ETF (EWC)

EWC follows the MSCI Canada Index which measures the performance of the Canadian equity market overall. The fund was launched in March 1996. The expense ratio is .53%. AUM equal $4.8 billion and average daily trading volume is 2.3 million shares. As of early March 2012 the annual dividend yield was 1.90% and YTD return 9.21%. The one year return was -12.50%.

Data as of First Quarter 2012

EWC Top Ten Holdings & Weightings

  1. Royal Bank of Canada (RY): 6.18%
  2. Toronto Dominion Bank: 5.55%
  3. Bank of Nova Scotia (BNS): 4.59%
  4. Suncor Energy, Inc. (SU): 4.53%
  5. Barrick Gold Corporation (ABX): 3.90%
  6. Canadian Natural Resources, Ltd. (CNQ): 3.33%
  7. Potash Corporation of Saskatchewan, Inc. (POT): 3.15%
  8. Goldcorp, Inc.: 3.15%
  9. Bank of Montreal (BMO): 2.92%
  10. Canadian National Railway Company (CNI): 2.72%

 

Our thinking is we'll be seeing many more ETFs linked to Canadian markets which move deeper into various market sectors. In fact, many are already in registration with the SEC pending release.

Canadian markets are heavily linked to the prices and movements of various important commodity markets as indicated previously. This won't change much going forward. Many investors currently believe "stuff in the ground" represents good long-term value especially given global central bank monetary policies. The Canadian financial and consumer sector is still much undiscovered and is ripe for more issues.

 

We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we're sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity


Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity


Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity


Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may also become popular as they become seasoned. 

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The ETF Digest has no current positions in the featured ETFs.

(Source for data is from ETF sponsors and various ETF data providers)