Canadian ETFs Are Compelling Under Trump Trade Threats

December 06, 2016

US Energy Security

Most important to the U.S. is energy security. Under NAFTA, Canada guarantees oil and gas shipments to the U.S. at average peak-export levels; scrapping NAFTA would release Canada from that commitment.

Canadian crude oil exports to the United States reached their highest level ever of 3.4 million barrels per day in early 2016, according to preliminary data from the U.S. Energy Information Administration. Canadian oil now accounts for 45% of all U.S. crude imports.

Also, Canada and the U.S. share the Great Lakes, jointly providing access to ocean-going vessels, and are closely linked through oil and gas pipelines, railways, highways, electricity grids and telecommunications networks. Cooperative agreements would be up for review in a new protectionist world.

Canada is no longer hostage to its southern neighbor when it comes to trade, which is why we find Canadian ETFs such as the ones below so compelling:

iShares MSCI Canada ETF (EWC) seeks to track the investment results of an index composed of Canadian equities. It provides exposure to large and midsize companies in Canada.

The iShares Currency Hedged MSCI Canada ETF (HEWC) seeks to track the investment results of an index composed of large- and midcapitalization Canadian equities while mitigating exposure to fluctuations between the value of the Canadian dollar and the U.S. dollar.

What’s interesting is that both the unhedged and hedged ETFs are similarly outperforming U.S. stocks in 2016.

Chart courtesy of StockCharts.com

 

Deborah Frame is president and chief investment officer of Frame Global. She also co-heads the Canadian Chapter of Women in ETFs. Frame Global Asset Management currently does not hold positions in EWC or HEWC. The company is a Toronto-based asset management firm that uses ETFs exclusively in its top-down global asset allocating strategies. The firm provides innovative, subadvised investment models to clients in the U.S. and Canada using tactical asset allocation models that are focused on client risk tolerance thresholds as defined by downside risk, rather than the traditional measure of risk as volatility or uncertainty. www.frameglobal.com

 

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