(Canadian readers, feel free to ignore this post)
Canada tends to slip through the cracks for many foreign investors. Foreign holdings are typically allocated to the MSCI EAFE (developed markets in Europe, Australia and the Far East) and perhaps a smaller portion MSCI Emerging Markets Index. Canada is not represented in the MSCI EAFE and of course, it is not an emerging market either.
Here are some of the reasons why you might want to add a little Canada to your portfolio:
- After a decade of being derided as the northern peso, the loonie (as the Canuck buck is called) has soared in the past three years from US$0.63 to a recent high of US$0.85, a gain of 35% in just currency alone.
- Canada is rich in resources. Many commentators are of the opinion that the commodities boom is just beginning.
- The energy sector in Canada is booming with massive capital investments in the Alberta oil sands.
- Canada is in excellent fiscal health: the federal government has posted a string of budget surpluses, surpluses are forecast well into the future and a long string of trade surpluses.
- In the five year period (ending 9/30/2005), the MSCI Canada Index returned 7.27% (in US$ terms), compared to -1.5% for the S&P 500.
One easy way for US investors to get exposure to Canada is through the iShares MSCI Canada Index Fund (EWC). Canadian Banks (Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal and CIBC), Insurance companies (Manulife Financial, Sun Life Financial) and the Energy Sector (Encana, Suncor Energy, Canadian Natural Resources and Petro-Canada) are well represented and make up more than 40% of the index. One caveat though: financials and resources make up more than 75% of the index, so you will have to look elsewhere for diversification.
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10 responses so far ↓
1 Chrees // Nov 4, 2005 at 11:57 am
You probably mention this elsewhere (I just discovered the site), but there are some Canadian companies whose stock is traded on both the Toronto Stock Exchange and one of the U.S. boards.
Have recently bought into one such stock myself, and look forward to seeing how it does.
2 Administrator // Nov 4, 2005 at 4:29 pm
Chrees:
You are right. A large percentage of Canadian stocks are interlisted.
ValueLine covers a number of them as I mentioned in this post. Maybe, this is a topic for a future post
3 Chrees // Nov 4, 2005 at 11:44 pm
I think it definitely is worth a post. I was surprised to find some small-cap companies in the area I like to invest (medical breakthroughs) interlisted. I look forward to retiring comfortably, thanks in part to a Canadian company. Fingers crossed, of course.
4 Canadian Capitalist // Nov 5, 2005 at 7:19 pm
Risks in Your Canadian Investments
Since there ain’t no such thing as a free lunch, investing in Canada does involve some risks: The Canadian market is dominated by the finance and resources sectors. The risks of concentration in these two sectors can be seen from…
5 Blueprint for Financial Prosperity // Nov 7, 2005 at 6:29 am
Carnival of Personal Finance #21
Greetings and salutations! Welcome to the 21st Carnival of Personal Finance. Started a mere twenty-one weeks ago by the inimitable Flexo of ConsumerismCommentary, this Carnival seeks to quench your thirst for personal finance musings and this week is n…
6 » Carnival of Personal Finance #21 by Blueprint for Financial Prosperity // Nov 7, 2005 at 7:24 am
[...] Canadian Capitalist discusses why you should consider giving yourself a little exposure to the Canadian market as part of your equity allocation to international stocks. [...]
7 thc // Nov 7, 2005 at 11:14 pm
Not that there aren’t some fine Canadian companies to invest in, but if you’re looking for international diversification, the Canadian stock market has a high correlation to the U.S market–hence, not the best place for international exposure.
8 frugal underground » money: saving more, making more, enjoying more, needing less » Blog Archive » Great personal finance articles // Nov 8, 2005 at 9:06 am
[...] Adding Canada to Your Portfolio [...]
9 Canadian Capitalist // Nov 8, 2005 at 8:46 pm
thc: Good point about asset correlation. But the TSE index is not perfectly correlated with the S&P 500. The correlation is 0.66 for the 1978-1997 time period, which is not too bad. Also, note that correlation is time sensitive and might be quite different in the future. For better or worse, the Canadian market has a high weighting in energy and materials that many analysts think will perform well in the future. I still think a small weighting in the resource-rich Canadian market is appropriate.
10 A Tour of ETFs: Vanguard FTSE All-World Ex-US ETF (VEU) // Jun 5, 2008 at 4:41 pm
[...] Many readers are interested in learning more about the possibility of capturing exposure to most world markets in one fund through the Vanguard FTSE All-World Ex-US ETF, which trades on the AMEX under the ticker symbol VEU. The Vanguard website says that the FTSE All-World Ex-US Index tracks the performance of approximately 2,200 stocks in developed and emerging markets excluding the U.S. The VEU is a perfect holding for a U.S. investor as it allows them to get exposure to every major world market instead of buying three ETFs separately - Vanguard Europe Pacific ETF (VEA), Vanguard Emerging Markets ETF (VWO) and iShares MSCI Canada Index Fund (EWC). [...]
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