U.S. Markets open in 7 hrs 34 mins

Short-Term Trade Idea With Canada ETFs


Many Americans are already planning how they will spend the Memorial Day weekend with plenty cheering the fact that they do not have to work next Monday.

Prior to heading out for the long weekend, traders with a shorter time horizons may want to consider a trade with Canada exchange traded funds, such as the iShares MSCI Canada ETF (EWC) . In somewhat quiet fashion, EWC, by far the largest U.S.-listed Canada ETF, is up 6.5% this year compared to 3.7% gain for the SPDR S&P 500 ETF (SPY) . [Bieber Bounce for Canada ETFs]

EWC is also one of just 23 ETFs to make a new 52-high Thursday and that new high today may not be a coincidence.

“Canadian equity markets have a history of moving higher around the U.S. Memorial Day holiday, held on the last Monday of May . This year the holiday falls on May 26th, a week after the Victoria Day holiday in Canada,” write Don and Jon Vialoux for the Globe and Mail.

Canada’s benchmark TSX Index has generated positive returns on 18 of the past 24 Memorial Days, the duo write. The notion behind the trade is that although volume will likely be light in Canada next Monday, with U.S. markets closed and no major economic news due out of Canada, there is little to derail Canadian shares from moving higher.

As highlighted by EWC’s year-to-date performance, Canadian stocks have impressed to this point in the year. The resource-rich Canadian economy and equities there have benefited from a slumping currency as the CurrencyShares Canadian Dollar Trust (FXC) is off 2.2% this year, providing a boost to oil and raw materials exporters. [Canadian Dollar ETF Weakens]

The energy and materials sectors combine for 37.4% of EWC’s weight. The IndexIQ Canada Small Cap ETF (CNDA) , which allocates nearly two-thirds of its combined weight to the energy and materials sectors, is up 11.5% this year compared to a 3% loss for the iShares Russell 2000 ETF (IWM) . [Global Small-Cap ETFs Shine]

EWC has also been buoyed by strength among Canadian bank stocks. The financial services sector accounts for nearly 37% of the ETF’s weight and the five bank stocks found among the fund’s top-10 holdings have returned an average of 4.4% this year. That compares with a 1% gain for the Financial Select Sector SPDR (XLF) .

Those looking for additional holiday-related opportunities with EWC should note Canadian stocks have a tendency to perform well around the time of the other U.S. holidays – Independence Day and Thanksgiving – when Canadian markets remain open, according to Thackray’s Investor’s Guide.

iShares MSCI Canada ETF


Tom Lydon’s clients own shares of IWM and SPY.