The ETF EWC (iShares) tracks the MSCI Canada Index, which is composed of 94 stocks, so it is rather large relative to other national indexes.
This index is representative of the country's economy, and consists of large and mid caps, it has the specificity to be very focused on financials (42% of the market), energy (23%) and mining (11%) and the remaining 24% for all other industrial sectors and services. The top 10 holdings account for 45% of the Index and are representative of these 3 sectors, and the first is a Bank (Royal Bank of Canada 8% of the Index).
The performance of the fund since the beginning of the year was + 3%, following an increase of 21.6% in 2016, driven by the recovery of the banks and commodities, whereas in 2015 the index fell sharply of -25.5%. This index is rather volatile, with the three main sectors being very cyclical. Canada should continue to benefit from the positive momentum in 2017 while earnings growth (estimated at 2 digits) seems to justify the current valuation, with the PER at around 17x earnings 2017.
ETF expenses are rather above the average to 0.48%.
Canada's economy is the 10th largest in the World in terms of GDP, 1600 bn $, and stand between Brazil and South Korea, but with only 35 million people, and relies heavily on exports. The country was hit hard by the fall in oil prices and the decline in commodity prices in 2015 which pushed the unemployment rate to 7%. Accounting for more than two-thirds of GDP and employing over 78% of the active population, the service are the most important sector in the Canadian economy. Strongest sectors are : Financial services, telecommunications, tourism, Internet and Aerospace (through Bombardier). The agriculture and agri-food sector employs nearly two million people and contributes to nearly 8% of national wealth : Canada is one of the biggest exporters of agricultural products in the world, in particular of wheat, it produces 10% of Global GMO crops while fishing is also an important sector. Canada is one of the leading producers of minerals, such as zinc and nickel, uranium. The country also has major oil reserves (the third world reserve) and natural gas.
The United States absorb about 80% of Canadian exports, Canada is in fact the largest foreign supplier of energy, including oil, gas, uranium and electrical energy. But the Donald Trump wishing to renegotiate the NAFTA and reduce the external deficit of the United States is potentially problematic for Canada, very dependent on its powerful neighbour. However the agreement negotiated with Europe (CETA) is promising.
The theme of the rise in yields and the recovery in inflation benefits the Canadian index due to its strong exposure to banks that are the main beneficiaries. Commodities have also started a rally beneficial to the Index.
