Beacon Asset Managers'  Instablog

For the last ten years the Canadian economy has benefited from, and is expected to continue to benefit from, the global commodity demand in the energy, materials and agriculture sectors. This, combined with a strong banking system, following it's restructuring from its "bust" in the early 1990s, places it in a strong economic position going forward.

The iShares MSCI Canada index ETF (EWC) has been a strong performer since the March 2009 lows. It has returned 78.5 percent versus the S&P Global Index ETF (IOO) return of 59.8 percent. This outperformance has been driven by the Index's overweight position in the top performing sectors since the March lows: Financials, with a 36 percent weighting; and Materials, with 18 percent. This has made up for the underperformance of the ETFs second largest sector, Energy, with a 26 percent weighting. The iShares Canadian Small Cap fund (Canadian listed ETF: XCS) is up 54.3 percent and has underperformed the large cap index because of its lower weighting in financials, 14 percent versus the 36 percent weighting in the EWC.

Both Canadian ETFs need a period of consolidation after such a strong run, and we would favor buying opportunities in the IShares Canadian Small Cap fund over the next two to three months.

Economic Background: 3rd in Forbes 2009 Best Countries for Business:

As an affluent, high-tech industrial society in the trillion-dollar class, Canada resembles the US in its market-oriented economic system, pattern of production, and affluent living standards. Since World War II, the impressive growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban. The 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) (which includes Mexico) touched off a dramatic increase in trade and economic integration with the US, its principle trading partner. Canada enjoys a substantial trade surplus with the US, which absorbs nearly 80% of Canadian exports each year. 

Canada is the US's largest foreign supplier of energy, including oil, gas, uranium, and electric power. Given its great natural resources, skilled labor force, and modern capital plant, Canada has enjoyed solid economic growth, and prudent fiscal management has produced consecutive balanced budgets from 1997 to 2007. In 2008, growth slowed sharply as a result of the global economic downturn, US housing slump, plunging US car sales, and drop in world commodity prices. Public finances, too, are set to deteriorate for the first time in a decade. Tight global credit conditions have further restrained business and housing investment, despite the conservative lending practices and strong capitalization that made Canada's major banks among the strongest in the world.

Demographic Landscape:

Canadian Population

2009 Population: 33,460,900

2025 Estimated Population: 37,911,800 (Growth 13.3%)

Canadian Generations

Generation X–1965 to 1984: 7,358,156

Generation Y–1985 to 2004: 7,289,816 (Decline 1%)

Generation Z–2005 to 2024 (Est.): 7,362,000 (Growth 1%)

Generation Blend–2025 to 2044 (Est.): 7,773,000 (Growth 5%)

Population over 65

Next year 14.3 percent of the Canada population will be over 65 years of age, and this is set to rise to 25.2 percent by 2044. In comparison Japan, with the highest 65-years and older ratio in the developed world, is 22.5 percent rising to 36.4 percent by 2044.

Canadian birth numbers peaked in 1959 at 479,275, versus a 2010 estimate of 375,000 (a fall of 21.8 percent). The number of children per women has fallen from 3.2 in 1965 to 1.6, and is forecast to remain static at 1.8 until 2044.


2025 Canada Population Pyramid