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| ETF
Spotlight -- Canada iShares (EWC) |
Published: January 26, 2004
The MSCI Canada iShares (EWC, $14.60) is an
exchange-traded fund (ETF) that broadly tracks the performance of the
Canadian stock market. The fund has a strong weighting in financial
stocks (more than 22%) as well as energy and materials companies (both
nearly at 16%). All of the fund's ten largest holdings trade as ADRs
(American Depository Receipts) on the New York Stock Exchange (NYSE).
Number one on the list is the Royal Bank of Canada (RY, $48.18), which
accounts for more than 7% of the fund's value.
Please recall that because EWC is an international
ETF, at any given time the fund's performance can be enhanced or
degraded by changes in the exchange rate between the U.S. dollar and the
Canadian dollar. For example, EWC gained +53% in 2003. However, if you
exclude the impact of the U.S. dollar's more than -17% drop versus the
Canadian dollar, those gains would have been closer to 35% (still pretty
good).
The point to remember when looking at EWC is that the Canadian stock
market is greatly affected by what happens in the United States.
However, it does not move in lock step with the U.S. equity market
simply because the companies that comprise the index there have much
different industry weightings than the U.S. stock market does. In fact,
the correlation between the S&P and EWC (including the changes in
the dollar) has been less than 50% over the past two years. I also
checked the fund's correlation with the Commodity Research Bureau's
(CRB) Index of commodity prices, and that was even lower.
| MSCI
Canada iShares (EWC) |
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| Type: |
International |
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| Similar funds: |
MSCI
Japan iShares |
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MSCI
EAFE iShares |
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| Options?: |
None |
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| Performance
Data |
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| 52-week High: |
$15.00 |
1/20/2004 |
|
Annualized
return since: |
| 52-week Low: |
$9.45 |
2/12/2003 |
|
One-year |
48.45% |
| 2003 Return: |
53.07% |
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Three-year |
2.45% |
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Five-year |
11.33% |
| Dividends: |
$0.20 |
past
12-mos |
Life of fund* |
10.03% |
| Expense Ratio: |
0.84% |
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*
- Started trading 3/18/1996 |
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| Correlation
Data* |
(1/02/02-12/31/03) |
Holdings* |
(as of
12/31/2003) |
| Dow
Jones Industrials |
50.5% |
|
Royal
Bk. Canada (RY) |
7.02% |
| S&P 500 |
|
49.8% |
|
Bank
Nova Scot. (BNS) |
5.65% |
| Nasdaq
Composite |
43.5% |
|
Bank
Montreal (BMO) |
4.50% |
| Nasdaq-100 |
|
39.7% |
|
EnCana
(ECA) |
4.13% |
|
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Canadian
Imprl. Bk. (BCM) |
3.99% |
| EWJ |
|
35.8% |
|
Alcan
(AL) |
3.78% |
| EFA |
|
54.3% |
|
Nortel
Networks (NT) |
3.63% |
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Sun
Life Fincl. (SLF) |
3.40% |
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Manulife
Fincl. (MFC) |
3.31% |
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Canadian
Natl. Rail. (CNI) |
2.75% |
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*
Percent top ten are of total |
42.16% |
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| Average
Daily Volume |
|
Average
Daily Price Range |
| Dec-03 |
129,309 |
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Dec-03 |
1.4% |
| 2003 |
305,722 |
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2003 |
1.6% |
| 2002 |
202,424 |
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2002 |
2.3% |
| *
- Correlation measures how closely the two items track each
other |
|
*
Includes prior day's close (true range) |
HOW TO MAKE MONEY IN EWC THIS
YEAR
EWC has been one of the top-performing funds over the past year. Recent
weakness in the materials sector has been offset by a strong push higher
in financial stocks as well as a burst in energy shares. Although EWC
does not look terribly frothy on a daily basis, it looks to be in some
danger on the weekly charts. Fourteen-week RSI is near 80 and diverging.
Meanwhile, ADX is at utterly frightening levels. In addition, there is
substantial risk that the U.S. dollar may finally have reached a
multi-month bottom against the Canadian currency. Add all of these items
up and the probabilities favor a fall of 20% or more in the next few
months for EWC. As of now, the outlook beyond that time period is not
clear. I would not even consider buying this fund unless it was trading
near $12.00 per share.
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