Beliebe It: This Canada ETF Rocks
Canadian imports. The good ones include Michael J. Fox, Wayne Gretzky and John Candy.
Those that do not remember this clip from Uncle Buck should it and send Canada a thank-you for day-brightening laughs that ensue. Canadian imports that should have stayed north of the border include that annoying "singer" that only 11 year old girls seem to like.
Getting down to business, it has not been the best for Canadian stocks. Despite proximity to the U.S., home of the some of the best developed market equity indices in the world this year, the iShares MSCI Canada ETF (NYSE: EWC) has been a laggard. The largest Canada ETF is down 4.3 percent this year and that is even as oil prices have soared. Energy stocks represent 26 percent of the ETF's weight.
Investors looking for north of the border exposure via ETFs should consider the First Trust Canada AlphaDEX Fund (NYSE: FCAN), aka the Canada ETF you have not heard of. And that is too bad because at the start of Friday FCAN, with just $24.8 million in assets under management, was up 9.5 percent year-to-date. FCAN, which debuted in February 2012, hit a new all-time high Friday.
Like EWC, FCAN is heavy on financial services, energy and materials names. Those sectors combine for 75 percent of EWC's weight and 57 percent of FCAN's weight. FCAN is not as large-cap heavy as its rival with a median market cap of $6.6 billion among its 40 holdings compared to almost $8.2 billion for EWC's 95 holdings.
However, what explains really explains FCAN's success, and therefore does not explain the ETF's anonymity, is the fund's use of the AlphaDEX methodology that has proven successful with so many First Trust sector funds.
That methodology works at the international level as well and FCAN is not the only ETF that proves it. Many investors probably do not know about the First Trust China AlphaDEX Fund (NYSE: FCA), though we said it was valid alternative to more popular China ETFs earlier this year. In the past month, FCA is up almost eight percent compared to 6.3 percent for the iShares China Large-Cap ETF (NYSE: FXI).
Eschewing traditional market capitalization weighting, FCAN's constituents are screened on factors including price appreciation, sales to price, book value to price, cash flow to price and return on assets. Another way of saying it is that FCAN is, fortunately, light on two of the more embattled Canadian sectors: Precious metals miners and fertilizer producers.
FCAN's top holding is Lions Gate Entertainment (NYSE: LGF), a stock that has more than doubled this year. Royal Bank of Canada (NYSE: RY), EWC's largest holding, is up 1.1 percent year-to-date. Lions Gate is not found in EWC's lineup. However, EWC does offer exposure of large-cap gold miners that are now into multi-year runs of being destroyers of shareholder value.
While EWC is not excessively exposed to one miner in particular, when the likes of Goldcorp (NYSE: GG) and Barrick (NYSE: ABX) are down 28 percent and 51 percent, respectively this year, FCAN becomes an "addition by subtraction" play and the better way of investing in Canada with ETFs.
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