Wednesday, May 22, 2013

Don’t bother crossing the world’s largest land border into the second largest country if you have any conviction worse than a speeding ticket in the last 5 years, Canada’s strict character criteria in its immigration policies will prevent your entry.   The country’s culture has helped sustain a strong economy and earned a higher ETFGsm country score than the US which has helped the iShares MSCI Canada Index Fund (EWC) get up to 1st place in today’s Quant ranking.   We have mentioned the fund to varying degrees over recent months and highlighted it on March 20th when it jumped up to 3rd place.

That was an early call for those looking for a long term position in a country with a solid currency.  We say early because it subsequently corrected by 7% but as we said on May 16th, a rebound is boosting its Behavioral Score, up to 72.9 today and almost perfectly balanced with its 72.8 Fundamental Score.  It’s Quality and country scores are higher but its sectors counter that strength giving EWC a Total Score right at those other numbers, 72.9, which has been trending upwards in a way that has become more rare lately.  The weaker sector score reflects more than 36% of AUM in financials, with energy, materials and industrials accounting for another half.  IShares uses a “portfolio sampling” technique to track the MSCI Canada Index which has selected 95 constituents with the top 5 accounting for more than 25% and the top 10 more than 41% of AUM.

Keeping felons and US economists out of the country has helped Canada recover from the brutal 2008 recession better than other G8 countries thanks to heavy bank regulation, a pre-crisis budget surplus and increasing energy exports to Asia.  That explains it’s lower than average 3.43 Red Diamond Risk Rating which has trended higher over the year as the fund’s performance has lagged.  That said, its 9.28 Green Diamond Reward Rating predicts that lagging performance has run its course and EWC is ready to lead.   If you like the US because it is the cleanest dirty shirt, take a look at Canada whose shirt is even cleaner.

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