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Canada Hikes Rates: ETFs in Focus

The Bank of Canada increased interest rates for the first time in seven-years. The BoC increased its benchmark interest rate to 0.75% from 0.5%.


After this decision, the Canadian central bank became the first in the Group of Seven (G7) central banks to follow the Federal Reserve’s path of policy normalization. The decision led to a rally in the Canadian dollar, as the CAD/USD rate hit a 12-month high. Stephen Poloz, governor of the Bank of Canada, said that the economy seems to be on right track and that the rate hike signals that it is strengthening (read: Canada's Outlook Improves: ETFs in Focus).


However, this development will not help oil producers in Canada, as higher borrowing costs have now been added to their plate when they are already battling low oil prices.


Following the announcement, five major Canadian banks announced that they were increasing the interest rate charged on variable-rate mortgages to 2.95% from.7%.


Consumer prices in Canada increased 1.3% year over year in May 2017 compared with 1.6% in April. There was a steep rise in business confidence in Canada, as the index increased to 61.6 in June 2017 compared with 53.8 in April.


Canada’s growth has been robust. The country’s GDP grew 0.9% sequentially in the first quarter of 2017 and 2.3% year over year. Moreover, the unemployment rate fell to 6.5% in June 2017 compared with 6.6% in April.


Let us now discuss a few ETFs focused on providing exposure to Canadian equities (see all Canadian Equity ETFs here).


iShares MSCI Canada ETF EWC


This is one of the most popular funds offering exposure to Canada. It is a perfect bet for those who are bullish on the overall performance of Canadian large cap firms.


The fund manages AUM of $3.04 billion and charges 48 basis points in fees per year. Financials, Energy and Basic Materials are the top three sectors of the fund, with 42.07%, 21.42% and 9.94% allocation, respectively (as of July 11, 2017). From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion Bank and Bank of Nova Scotia, with 8.30%, 7.17% and 5.61% allocation, respectively (as of July 11, 2017). It has returned 4.36% year to date and 7.4% in the last one year (as of July 12, 2017). EWC currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


SPDR MSCI Canada Quality Mix ETF QCAN


This fund targets exposure to large-cap companies in Canada. It is an appropriate bet for those looking at gaining exposure to Canadian equities but at the same time avoiding the inherent risks that small cap investments bring.


The fund manages AUM of $36.43 million and charges 30 basis points in fees per year. Financials, Energy and Consumer Staples are the top three sectors of the fund, with 40.21%, 11.87% and 9.16% allocation, respectively (as of July 11, 2017). From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion Bank and Canadian Imperial Bank of Commerce, with 4.35%, 4.16% and 3.93% allocation, respectively (as of July 11, 2017). It has returned 6.73% year to date and 9.15% in the last one year (as of July 12, 2017). QCAN currently has a Zacks Rank #3 with a Medium risk outlook.


First Trust Canada AlphaDEX Fund FCAN


This fund is a relatively less popular and expensive means to gain exposure to Canadian equities.


The fund manages AUM of $6.99 million and charges 80 basis points in fees per year. Financials, Basic Materials and Consumer Discretionary are the top three sectors of the fund, with 32.96%, 15.22% and 11.97% allocation, respectively (as of July 11, 2017). From an individual holdings perspective, the fund has high exposure to Industrial Alliance Insurance and Financial Services Inc, Magna International Inc and Manulife Financial Corporation, with 4.55%, 4.43% and 4.36% allocation, respectively (as of July 11, 2017). It has returned 1.85% year to date and 2.24% in the last one year (as of July 12, 2017). FCAN currently has a Zacks Rank #3 with a Medium risk outlook.


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ISHARS-CANADA (EWC): ETF Research Reports
 
SPDR-MSCI CSF (QCAN): ETF Research Reports
 
FT-CANADA (FCAN): ETF Research Reports
 
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