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October 01, 2011 at 08:00 PM
In recent years, investors have used ETF sector funds to achieve enhanced return potential based on fundamental and technical factors. The timing of investing in ETF sector funds is not always easy, but these securities have the potential to be rewarding if you are right on the fundamental and technical trends.
With weak economic growth evident in the United States, is there another way for investors to participate in ETF sector funds? Global sector funds may be viewed as too broad and exposed to weakened economies in developed markets in Europe or Japan.
A creative alternative to investing in industry sectors is through country ETF securities. This is a way to gain a higher percentage exposure to specific industries or sectors that an investor may favor. Country ETFs may also provide investors with geographic diversification in their portfolios away from U.S. equities, with an added kicker of high concentrations in select sectors.
We decided to highlight two ETFs that reflect either defensive or commodities-driven investment themes. We also wanted our country ETFs to be in developed markets with high concentrations of multinational companies to take advantage of growth in emerging markets.
The iShares MSCI Canada Index Fund (EWC) has $5.5 billion in total assets, average daily trading volume of 2.9 million shares and an 8.23% return in the past 12 months. Its expense ratio of 0.53% is comparable to most international ETFs, but higher than U.S. ETF sector funds, which are in the 0.20% to 0.50% range. EWC has 103 total holdings, and the underlying index is the MSCI Canada Index.
According to Alexander Young, S&P international equity strategist, Canadian equities have been volatile this year, but have still outperformed most other international equity markets. While a weaker U.S. economy hurts Canadian exports, Young believes the Canadian economy will continue to hold up better than most economies. Canada’s largest banks had less exposure to the U.S. financial crisis and have stronger balance sheets. Canada is also a large exporter of commodities related to oil and gas as well as other natural resources and materials.
