(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.