Canada is often overlooked as a market for U.S. investors, even those who are looking for international exposure. You can invest in Canadian ETFs to gain access to the country's entire economy, to certain industries, or even to certain asset classes. Canadian ETFs can be traded with a U.S. brokerage account similar to equities and is easier than trying to buy a foreign stock. Exchange-traded funds (ETFs) offer the diversity of an index with the simplicity of equity.
Canada is the 10th wealthiest country in the world. It's one of the few net exporters of energy with its large mining and energy industries. Its high standard of living and per capita income make it very stable politically.
- Canada offers some nice perks for investors, such as high capital income, political stability, and thriving mining and energy industries.
- At least six exchange-traded funds (ETFs) provide exposure to Canada's whole healthy economy.
- The Canadian economy can be a bit risky due to its dependence on the energy and commodities markets. These markets can be subject to some ups and downs.
- You might want to think about American depository receipts (ADRs) instead of ETFs in some cases.
The Most Popular Canadian ETFs
Canadian ETFs have grown in popularity given the country's stability, and due to its sizable energy and commodities industries. But the occasional weakness in commodity prices has led to sell-offs. Canada may be best known for these assets, from its gold mines to its oil sands and its logging industry. But its services industry employs 14.22 million people. The country is also one of the largest agricultural exporters in the world.
The MSCI Canada Index Fund (NYSE: EWC) is one of the most popular Canadian ETFs. It offers exposure to the country's whole economy. It holds 91 Canadian stocks with a total net asset value of over $4 billion as of May 2021. But you can also choose Canadian ETFs that focus on particular sectors or asset classes, as well as ETFs that tend to hold many Canadian stocks.
Five additional ETFs with a majority of Canadian exposure include Market Vectors Junior Gold Miners (NYSE: GDXJ), Market Vectors TR Gold Miners (NYSE: GDX), Silver Miners ETF (NYSE: SIL), and Uranium ETF (NYSE: URA).
Benefits and Risks of Canadian ETFs
Canada is energy independent. It ranks higher than the U.S. and most of the E.U. on the Heritage Foundation's Index of Economic Freedom as of 2021. The country's central bank has implemented a loose monetary policy to help the economy navigate the economic troubles of 2008 and 2009, and during the global sell-off in 2015 as well.
The largest risk is the Canadian economy's exposure to energy and commodities. These tend to be very volatile markets, particularly during downturns. The secular trend may be upward over the long term. But slowing emerging market or global demand can quickly reverse these trends in the short and medium terms.
Alternatives to Investing in Canadian ETFs
Investors seeking more direct exposure to Canadian companies may want to look into American Depository Receipts (ADRs). These securities trade on U.S. stock exchanges. They focus on a certain number of shares in a foreign corporation. They represent a single company instead of a basket of stocks, unlike a Canadian ETF.
Popular Canadian ADRs and U.S. traded stocks include Bank of Montreal (NYSE: BMO), TELUS Corporation (NYSE: TU), Sun Life Financial Inc. (NYSE: SLF), BCE Inc. (NYSE: BCE), and TransCanada Corporation (NYSE: TRP).
You can also purchase foreign shares on the Toronto Stock Exchange ("TSE") or the TSX Venture Exchange ("TSX").
Canada has strong ties to the U.S., so many U.S. brokerages can make trades on these exchanges without a lot of extra legwork. But some legal and tax implications may apply.