ETF Research and Analysis
by Patricia OeySuitability
As a one-country fund, iShares MSCI Canada Index EWC should be considered a satellite holding. This fund is not very well balanced, and it has a cyclical orientation. The top three sectors include financials (which accounts for 35% of the portfolio), energy (27%), and materials (19%). Read more
As a one-country fund, iShares MSCI Canada Index EWC should be considered a satellite holding. This fund is not very well balanced, and it has a cyclical orientation. The top three sectors include financials (which accounts for 35% of the portfolio), energy (27%), and materials (19%). Read more
Bull Case
EWC provides broad exposure to the Canadian equity market at a relatively attractive cost of 0.52%.
Rising commodity prices for export products such as oil, gold, and other minerals are contributing to the rise in the Canadian dollar. Investors concerned about a falling U.S. dollar could invest in EWC to gain exposure to non-U.S. dollar assets.
Sixteen of the top 20 holdings have either a narrow or wide moat. The large banks have wide moats, thanks to regulations that limit competition, and the large energy companies have narrow moats, which can be attributed to their scale and portfolio of assets. Read more
Bear Case
This fund's heaviest sector weightings are in cyclical industries--financials (which accounts for 35% of the portfolio), energy (27%), and materials (19%). In addition, the energy and materials sectors sell commodity products, whose prices can be very volatile.
Exports to the U.S. account for 25% of Canada's GDP, making the Canadian economy highly dependent on the economic health of the U.S.
The Canadian financial-services sector is fairly mature, which limits the domestic growth opportunities for Canada's big five banks. These five banks account for 23% of EWC's portfolio. In addition, Canadian banks that have expanded into the U.S. market are currently facing a challenging operating environment.
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