ETF Expert

There may be 33 million people in Canada. All of them, and perhaps most of the world’s citizens, may have cheered its gold medal victory over the Americans in the 2010 Winter Olympics.

Yet investors have been cheering Canada on for years with iShares MSCI Canada (EWC) outperforming the S&P 500 SPDR Trust (SPY) in the previous decade. In other words, the decade may not have been entirely “lost” for those who ventured north of the border.

Perhaps it is unfortunate, however, that EWC is primarily a play on energy. As one of the world’s top exporters of oil with vast reserves, the stock ETF seems to move in tandem with Global Energy (IXC). In fact, were it not for an uncharacteristic out-performance in 2009, you might not be able to tell the two apart.

This is not to suggest that one ignore the liquidity or performance of iShares MSCI Canada (EWC); rather, one needs to be keenly aware of the overlap to maintain true diversification in one’s portfolio. (Note: You’d find a similar phenomenon between Global Materials MXI and iShares Brazil EWZ.)

Beyond the energy play, there’s something even more impressive for Canada enthusiasts to consider: the loonie. Yes, Canada’s currency is genuinely poised for a pop.

In fact, as many investors may find themsleves being lulled to sleep on Wednesday afternoon, the CurrencyShares Canadian Dollar (FXC) recently logged new 52-week, intra-day highs. It did pull back from that peak. Nevertheless, there are quite a few reasons to expect good things out of the loonie.

First, the Bank of Canada is gearing up to raise rates. It’ll only be the first move of a series of moves higher. What’s more, the central authority will be doing so… probably… 6 months before the U.S. When interest rate hikes begin, you can usually count on currencies to appreciate in value.

Granted, CurrencyShares Canadian Dollar (FXC) may already be anticipating the moves. Still, FXC is 10-12% off all time highs against the U.S. dollar… and I would anticipate the exchange-traded vehicle making a run at all-time highs.

Second, and this is pure speculation on my part, I see the Canadian dollar as a bit of a safe haven. If the U.S. dollar strengthens because of fears of European debt default or due to true red-white-and-blue recovery, the Canadian dollar seems to benefit. And if the U.S. dollar flattens or weakens (as I suspect that it will) due to subpar U.S. economic data or stronger GDP growth around the world, FXC represents a developed world currency that is still likely to benefit.

One word of caution: CurrencyShares Canadian Dollar (FXC) is hitting resistance at 52-week highs. You may or may not choose to wait for a pullback before making a limit order purchase.

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