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Canada ETF Back on Track with Economy Recovering


With the energy shock abating, Canada’s economy is on the mend and the country-specific exchange traded fund is now trading back above its long-term trend.

The iShares MSCI Canada ETF (EWC) increased 8.2% over the past month and is hovering above its 200-day simple moving average.

Additionally, the First Trust Canada AlphaDEX Fund (FCAN) , which employs growth and value screens to select holdings, gained 8.7% over the past month while the recently launched, SPDR MSCI Canada Quality Mix ETF (QCAN) , which includes value, quality and low volatility screens, rose 7.5%.

Bank of Canada Governor Stephen Poloz argues that the economy is recovering from the oil swing and discouraged speculation of any need for further interest rate cuts to prop up the market, reports Greg Quinn for Bloomberg.

Policy makers surprised observers at the start of the year with a 25 basis point cut to the benchmark rates in an attempt to diminish the impact of falling oil prices. [Tepid Response by Canada ETFs to Surprise Rate Cut]

Looking ahead, the central bank projects the Canadian economy to quicken to a 1.8% annualized growth rate this quarter and to 2.8% in the third quarter. Poloz also anticipates that the economy will return to full capacity at the end of next year. [Rising Oil Could Provide Solid Footing for Canada ETFs]

“If you are expecting stronger growth in the second quarter and in the second half, then it would appear you don’t need to cut rates again,” John Clinkard, chief economist at Deutsche Bank Canada, said in the article.

Due to the more cautious first quarter view, reports on retail sales, employment and gross domestic product have all beaten consensus forecasts. Canada’s core inflation rate is also hovering above the central bank’s 2% target.

“Outside of the energy sector, other areas of the economy appear to be doing well,” Poloz said. “The segments of non-energy exports that we expected to lead the recovery are doing so, and we expect this trend to be buttressed by stronger U.S. growth and the lower Canadian dollar.”

The CurrencyShares Canadian Dollar Trust (FXC) , which tracks the Canadian dollar’s movement against the U.S. dollar, is down 3.9% year-to-date but is up 4.2% over the past month. The recent strength in the Canadian dollar may have also bolstered gains in CAD-denominated investments, such as the non-hedged Canada ETFs.

iShares MSCI Canada ETF


For more information on Canada, visit our Canada category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.