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British Columbia Elections Bring These Canada ETFs in Focus

Zacks Equity Research

Though the French presidential elections have taken away the limelight from most of the other markets, provincial elections are no less important. The general elections in British Columbia, Canada taking place today are crucial as the region plays a major role in driving the country’s economic growth. It is home to one of Canada’s biggest housing markets and is an export hub (read: ETF Winners and Losers on Trump's Canadian Timber Tariff).

The contenders for the next premier of the province are Christy Clark of the Liberals, John Horgan from the New Democratic Party (NDP) and Andrew Weaver of the Green Party. The most recent poll conducted by Insights West on May 8, 2017 shows Liberals and the NDP tied at 41% and the Green Party lagging at 17%.

For a country that derives almost 7% of its GDP from the energy sector, the recent poll trends may not appear encouraging. Clark plans to increase jobs by setting up a Liquefied Natural Gas (LNG) industry and expand oil pipelines. Contrary to this, the NDP has promised to do everything at its disposal to stop the Kinder Morgan oil pipeline project from getting approved. Horgan is keen on making life more affordable, reviewing oil and gas subsidies, and taxing the rich.

Looking at the bigger picture, such stringent regulations for the energy industry, which is so integral to the country’s economic growth, might not bode well for Canada. NDP’s anti-business stance seems to be a concern for investors, as the primary factor to judge the future outlook of a region is consumer and business confidence. These are at risk if the NDP candidate emerges victorious (read: ETFs in Focus Post the Canadian Federal Budget).

However, going by the outcome of the U.S. presidential elections, one can say that polls cannot always be trusted. Though they managed to predict Emmanuel Macron’s victory in France correctly, Canada has a long history of conflicting polls and election outcomes.

Therefore, depending on the polls to predict the election outcome will not be prudent. It is also difficult to predict if the markets have priced in the risks of an NDP victory.

In the current scenario, let us discuss the following ETFs that are primarily focused on providing exposure to Canada equities.

iShares MSCI Canada ETF EWC

This fund is one of the most popular funds offering exposure to Canada. It is an appropriate bet for investors who are bullish on the overall performance of Canadian large cap firms.

The fund manages AUM of $3.007 billion and charges 48 basis points in fees per year. Financials, Energy, and Basic Materials are the top three sectors of the fund, with 41.37%, 23.03%, and 10.22% allocation, respectively (as of May 5, 2017).

From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion, and Bank of Nova Scotia, with 8.20%, 7.05%, and 5.47% allocation, respectively (as of May 5, 2017). It returned 0.65% in the year-to-date time frame and 8.58% in the past year (as of May 8, 2017). EWC currently has a Zacks ETF Rank #2 (Buy) 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 investors looking to gain exposure to Canadian equities but at the same time avoiding the inherent risks that small-cap investments bring.

The fund manages AUM of $35.16 million and charges 30 basis points in fees per year. Financials, Energy, and Consumer Staples are the top three sectors of the fund, with 35.44%, 13.18%, and 9.85% allocation, respectively (as of May 5, 2017. From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion, and Canadian Imperial Bank of Commerce, with 4.18%, 3.74%, and 3.73% allocation, respectively (as of May 5, 2017). It returned 1.44% in the year-to-date time frame and 7.42% in the past one year (as of May 8, 2017). QCAN currently has a Zacks Rank #2 with a Medium risk outlook.

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