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Canada Wholesale Sales Decline, Inflation up: ETFs in Focus

Zacks Equity Research
Some investors are rotating out of earlier high flying technology stocks into cheap emerging markets.

Wholesale Sales in Canada declined 0.5% in June to C$61.4 billion. The primary drivers for this decline were the food and auto industries.


While food industry wholesale sales declined 1.1% in June to C$10.78 billion, auto industry wholesale sales declined 1.7% to C$9.13 billion.


There was a fall in business confidence in Canada, as the index increased to 60 in July 2017 compared with 61.6 in June. Moreover, the Canadian economy faces high trade risks from potential renegotiations in NAFTA.


The Bank of Canada (BoC) hiked interest rates for the first time in seven years in July. The BoC increased its benchmark interest rate to 0.75% from 0.5% (read: Canada Hikes Rates: ETFs in Focus).


Consumer prices in Canada increased 1.2% year over year in July 2017 compared with 1% in June. The increase was in line with estimates.


Moreover, two of the three measures of core inflation that BoC introduced last year increased, per Statistics Canada. On an average, core inflation was up 1.5% in July compared with 1.4% in June. This rise in inflation provides further room to the BoC to hike rates.    


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.


However, Canada’s growth has been robust. The country’s GDP grew 0.6% in May 2017 compared with a 0.2% in April. Moreover, it beat economists’ forecasts of 0.2%. Moreover, Canada’s unemployment rate fell to a seven-year low of 6.3% in July with net job gains of 10,900.


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 $3.08 billion and charges 48 basis points in fees per year. Financials, Energy and Basic Materials are the top three sectors of the fund, with 41.93%, 21.49% and 10.31% allocation, respectively (as of August 18, 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 8.18%, 7.12% and 5.60% allocation, respectively (as of August 18, 2017). It has returned 3.84% year to date and 5.89% in the last one year (as of August 21, 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 $36.87 million and charges 30 basis points in fees per year. Financials, Energy and Consumer Staples are the top three sectors of the fund, with 40.12%, 11.75% and 9.34% allocation, respectively (as of August 18, 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 4.28%, 4.12% and 3.99% allocation, respectively (as of August 18, 2017). It has returned 6.50% year to date and 8.22% in the last one year (as of August 21, 2017). QCAN 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
 
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