Canada EWC ETF a value play?

A place to talk about speculative investing ideas for the optional Variable Portfolio

Moderator: Global Moderator

Post Reply
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Canada EWC ETF a value play?

Post by ochotona » Sun Apr 21, 2019 4:05 pm

After years and years of underperformance relative to SPY, you'd think there is a value investing story in the iShares Canada ETF, EWC.

EWC hasn't gone anywhere in 11+ years. I'll bet people despise it.

Maybe when there is a comeback pending for oil, timber, mining... EWC would be a way to buy a natural resources basket, also you'd get some cannabis! And banks. Well, maybe not a good time, since real estate is under pressure. Couldn't see Tim Horton's doughnuts in the holdings. I love those doughnuts.

ROYAL BANK OF CANADA
TORONTO DOMINION
ENBRIDGE INC
CANADIAN NATIONAL RAILWAY
BANK OF NOVA SCOTIA
SUNCOR ENERGY INC
BANK OF MONTREAL
TRANSCANADA CORP
BROOKFIELD ASSET MANAGEMENT INC CL
CANADIAN NATURAL RESOURCES LTD
MANULIFE FINANCIAL CORP
CANADIAN IMPERIAL BANK OF COMMERCE
NUTRIEN LTD
CANADIAN PACIFIC RAILWAY LTD
ALIMENTATION COUCHE TARD SUB VOTIN
SUN LIFE FINANCIAL INC
BARRICK GOLD CORP
SHOPIFY SUBORDINATE VOTING INC CLA
MAGNA INTERNATIONAL INC
PEMBINA PIPELINE CORP
ROGERS COMMUNICATIONS NON-VOTING I
CGI INC
CONSTELLATION SOFTWARE INC
NATIONAL BANK OF CANADA
RESTAURANTS BRANDS INTERNATIONAL I
FORTIS INC
FRANCO NEVADA CORP
FAIRFAX FINANCIAL HOLDINGS SUB VOT
TECK RESOURCES SUBORDINATE VOTING
THOMSON REUTERS CORP
INTACT FINANCIAL CORP
ENCANA
CENOVUS ENERGY INC
OPEN TEXT CORP
WHEATON PRECIOUS METALS CORP
LOBLAW COMPANIES LTD
AGNICO EAGLE MINES LTD
DOLLARAMA INC
SHAW COMMUNICATIONS INC CLASS B
METRO INC
IMPERIAL OIL LTD
FIRST QUANTUM MINERALS LTD
GILDAN ACTIVEWEAR INC
SAPUTO INC
POWER CORPORATION OF CANADA
TELUS CORP
BAUSCH HEALTH COMPANIES INC
GREAT WEST LIFECO INC
CANADIAN TIRE LTD CLASS A
BCE INC
POWER FINANCIAL CORP
INTER PIPELINE LTD
CCL INDUSTRIES INC CLASS B
CAE INC
GEORGE WESTON LTD
CANOPY GROWTH CORP
WSP GLOBAL INC
HYDRO ONE LTD
ONEX CORP
KEYERA CORP
BLACKBERRY LTD
CAMECO CORP
SNC LAVALIN INC
IA FINANCIAL INC
BOMBARDIER INC CLASS B
CAD CASH
TOURMALINE OIL CORP
KINROSS GOLD CORP
METHANEX CORP
EMPIRE LTD CLASS A
CI FINANCIAL CORP
VERMILION ENERGY INC
HUSKY ENERGY INC
LUNDIN MINING CORP
CANADIAN UTILITIES LTD CLASS A
ALTAGAS LTD
RIOCAN REAL ESTATE INVESTMENT TRUS
FINNING INTERNATIONAL INC
WEST FRASER TIMBER LTD
PRAIRIESKY ROYALTY LTD
AURORA CANNABIS INC
ATCO LTD CLASS I
FIRST CAPITAL REALTY INC
HANDR REAL ESTATE INVESTMENT TRUST
ARC RESOURCES LTD
IGM FINANCIAL INC
EMERA INC
SEVEN GENERATIONS ENERGY LTD CLASS
STARS GROUP INC
SMARTCENTRES RL ESTATE INVESTMENT
TURQUOISE HILL RESOURCES LTD
CRONOS GROUP INC
BLK CSH FND TREASURY SL AGENCY
CASH COLLATERAL CAD UBFUT
S&P/TSE 60 INDEX JUN 19
USD CASH
pmward
Executive Member
Executive Member
Posts: 1731
Joined: Thu Jan 24, 2019 4:39 pm

Re: Canada EWC ETF a value play?

Post by pmward » Mon Apr 22, 2019 9:20 am

ochotona wrote:
Sun Apr 21, 2019 4:05 pm
After years and years of underperformance relative to SPY, you'd think there is a value investing story in the iShares Canada ETF, EWC.

EWC hasn't gone anywhere in 11+ years. I'll bet people despise it.

Maybe when there is a comeback pending for oil, timber, mining... EWC would be a way to buy a natural resources basket, also you'd get some cannabis! And banks. Well, maybe not a good time, since real estate is under pressure. Couldn't see Tim Horton's doughnuts in the holdings. I love those doughnuts.

ROYAL BANK OF CANADA
TORONTO DOMINION
ENBRIDGE INC
CANADIAN NATIONAL RAILWAY
BANK OF NOVA SCOTIA
SUNCOR ENERGY INC
BANK OF MONTREAL
TRANSCANADA CORP
BROOKFIELD ASSET MANAGEMENT INC CL
CANADIAN NATURAL RESOURCES LTD
MANULIFE FINANCIAL CORP
CANADIAN IMPERIAL BANK OF COMMERCE
NUTRIEN LTD
CANADIAN PACIFIC RAILWAY LTD
ALIMENTATION COUCHE TARD SUB VOTIN
SUN LIFE FINANCIAL INC
BARRICK GOLD CORP
SHOPIFY SUBORDINATE VOTING INC CLA
MAGNA INTERNATIONAL INC
PEMBINA PIPELINE CORP
ROGERS COMMUNICATIONS NON-VOTING I
CGI INC
CONSTELLATION SOFTWARE INC
NATIONAL BANK OF CANADA
RESTAURANTS BRANDS INTERNATIONAL I
FORTIS INC
FRANCO NEVADA CORP
FAIRFAX FINANCIAL HOLDINGS SUB VOT
TECK RESOURCES SUBORDINATE VOTING
THOMSON REUTERS CORP
INTACT FINANCIAL CORP
ENCANA
CENOVUS ENERGY INC
OPEN TEXT CORP
WHEATON PRECIOUS METALS CORP
LOBLAW COMPANIES LTD
AGNICO EAGLE MINES LTD
DOLLARAMA INC
SHAW COMMUNICATIONS INC CLASS B
METRO INC
IMPERIAL OIL LTD
FIRST QUANTUM MINERALS LTD
GILDAN ACTIVEWEAR INC
SAPUTO INC
POWER CORPORATION OF CANADA
TELUS CORP
BAUSCH HEALTH COMPANIES INC
GREAT WEST LIFECO INC
CANADIAN TIRE LTD CLASS A
BCE INC
POWER FINANCIAL CORP
INTER PIPELINE LTD
CCL INDUSTRIES INC CLASS B
CAE INC
GEORGE WESTON LTD
CANOPY GROWTH CORP
WSP GLOBAL INC
HYDRO ONE LTD
ONEX CORP
KEYERA CORP
BLACKBERRY LTD
CAMECO CORP
SNC LAVALIN INC
IA FINANCIAL INC
BOMBARDIER INC CLASS B
CAD CASH
TOURMALINE OIL CORP
KINROSS GOLD CORP
METHANEX CORP
EMPIRE LTD CLASS A
CI FINANCIAL CORP
VERMILION ENERGY INC
HUSKY ENERGY INC
LUNDIN MINING CORP
CANADIAN UTILITIES LTD CLASS A
ALTAGAS LTD
RIOCAN REAL ESTATE INVESTMENT TRUS
FINNING INTERNATIONAL INC
WEST FRASER TIMBER LTD
PRAIRIESKY ROYALTY LTD
AURORA CANNABIS INC
ATCO LTD CLASS I
FIRST CAPITAL REALTY INC
HANDR REAL ESTATE INVESTMENT TRUST
ARC RESOURCES LTD
IGM FINANCIAL INC
EMERA INC
SEVEN GENERATIONS ENERGY LTD CLASS
STARS GROUP INC
SMARTCENTRES RL ESTATE INVESTMENT
TURQUOISE HILL RESOURCES LTD
CRONOS GROUP INC
BLK CSH FND TREASURY SL AGENCY
CASH COLLATERAL CAD UBFUT
S&P/TSE 60 INDEX JUN 19
USD CASH
Canadian banks are a very popular short sell at the moment. That doesn't mean that they will go down, but there is a lot of risk. Also, not sure I'm sold on the cannabis space. At the end of the day, it's a commodity and cannabis companies will wind up having all the excitement of current commodity companies (i.e. none). As soon as cannabis futures are listed, the party is over, imo.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Canada EWC ETF a value play?

Post by ochotona » Mon Apr 22, 2019 9:32 am

Yep, concerned about their banks. I wonder if EWC is a 1st world way to play EM... the yearly returns are 97% correlated with VWO! I am semi-dismayed that EM ETFs carry so much China. Seems like an overconcentration.
pmward
Executive Member
Executive Member
Posts: 1731
Joined: Thu Jan 24, 2019 4:39 pm

Re: Canada EWC ETF a value play?

Post by pmward » Mon Apr 22, 2019 9:52 am

ochotona wrote:
Mon Apr 22, 2019 9:32 am
Yep, concerned about their banks. I wonder if EWC is a 1st world way to play EM... the yearly returns are 97% correlated with VWO! I am semi-dismayed that EM ETFs carry so much China. Seems like an overconcentration.
Yeah, I think if you want some EM ex-china exposure and don't want to be too overly exposed to the risks of Canada specifically you could also look at a basket of EM single countries. Like maybe splitting that chunk between 3-4 countries like Canada, India, Brazil, etc. It would require a bit of research into the specific countries you choose, but at least would be a good way to diversify your bets a bit while keeping your China exposure in check. You could possibly get a better return as well, since some EM's are cheap because they deserve to be cheap, and you could weed them out.
User avatar
Mike59
Full Member
Full Member
Posts: 87
Joined: Mon Dec 08, 2014 4:07 pm

Re: Canada EWC ETF a value play?

Post by Mike59 » Thu Apr 25, 2019 8:39 pm

Canadian investor here and I'd discourage buying EWC. Canadian banks are betting heavily on Canadian real estate which is probably one of the world's largest bubbles right now, I would steer far away if you're looking at a value play. On a more technical basis, CAPE ratios suggest Canada is still near the top of the pack and not that far from US valuations. Go EM or Europe for value, emerging europe if you can.

When building my PP I looked at correlation coefficients and aimed for internal correlation of zero, this is not possible using Canadian stocks and gold in the same portfolio,they run too closely with one another but I was able to achieve zero correlation by splitting my equities between Emerging Markets and Developed Europe. I've chosen to relocate all my stocks outside Canada, considering 25% of my PP is in Canadian bonds , that's already more exposure than I'd want to this housing madness...
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Canada EWC ETF a value play?

Post by ochotona » Wed May 01, 2019 8:10 pm

A combo of SPY and EWC in a Dual Momentum set-up just crushes it over time.

It's a safe jurisdiction, it's transparent, with rule of law. So different from many places in the world you end up investing in when you own an AWCI ex-US ETF.
Last edited by ochotona on Thu May 02, 2019 3:20 pm, edited 1 time in total.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Canada EWC ETF a value play?

Post by ochotona » Wed May 01, 2019 9:27 pm

User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Canada EWC ETF a value play?

Post by ochotona » Sun May 05, 2019 8:18 pm

S&P 500 and Canadian stocks Dual Momentum. Oddly, single lookback 12 months works best. But 3 6 12 or your choice are fine. Canada has better than EM performance (well, both have sucked for many years, but it has not always been the case, and may not be again), and it's a safe and transparent jurisdiction. Canada totally kicks other Developed Economy ex-US stock markets to the curb. If you want to own some gold miners, but are too chicken... they're in there. Oil well drillers? In there. Cannabis? In there. Really good doughnuts? Tim Horton's, not in EWC, but you can buy Tim Horton's shares yourself.

Vanguard S&P 500 and Fidelity Canada Mutual Fund used for Dual Momentum test.

Image
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Canada EWC ETF a value play?

Post by ochotona » Tue Jul 02, 2019 10:01 pm

If you were a "rational" investor driven only by long-term backtests and CAGR (as so many claim to be), you'd only ever choose Emerging Markets or Canada, right? What's that insignificant green line down there? Oh, that's the S&P 500... have you heard of it?

And yet, EM and Canada have royally sucked for the past decade. Some firms, like GMO, talk about EM outperforming in the future. I hear no one talk about Canada. And yet, they are so closely correlated. But Canada is "EM in a safe jurisdiction". Why wouldn't you want to own it, if you were inclined to own EM?

Oh, and the ZCAN ETF is paying a 2.55% dividend now. Versus 1.7% for S&P 500 ETFs.

Image
pmward
Executive Member
Executive Member
Posts: 1731
Joined: Thu Jan 24, 2019 4:39 pm

Re: Canada EWC ETF a value play?

Post by pmward » Wed Jul 03, 2019 9:18 am

Because there's a lot to dislike about Canada. They didn't go through the deleveraging most of the world went through in 2008. Instead, their consumer debt has continued to pile on. Their real estate markets are a super bubble right now, that is about to really burst as they are implementing laws to reduce foreign real estate investment because real estate has become too pricey for the native people living in the urban areas, particularly the Vancouver and Toronto areas. Their banks are also a giant bubble that is standing on very shaky ground. I see no macro reason to have any interest at all in Canada at the moment.
D1984
Executive Member
Executive Member
Posts: 730
Joined: Tue Aug 16, 2011 7:23 pm

Re: Canada EWC ETF a value play?

Post by D1984 » Wed Jul 03, 2019 10:49 pm

ochotona wrote:
Tue Jul 02, 2019 10:01 pm
If you were a "rational" investor driven only by long-term backtests and CAGR (as so many claim to be), you'd only ever choose Emerging Markets or Canada, right? What's that insignificant green line down there? Oh, that's the S&P 500... have you heard of it?


Image
Fair enough...but what happens when you extend the backtest by another 5 years to 1-1-1994? Canadian equities returned about 1.93% a year in USD for 1994-1998 (this was less than T-Bills returned); EM actually earned a negative return during this time (it turned $10,000 on 1-1-94 into around $6,500 by 12-31-98).

With that said, yes, US stocks do not look anywhere near cheap right now when compared to Canadian stocks. The issue that I would be most concerned about was mentioned earlier in this thread--what will happen to the big four (or is it five) Canadian banks if Canada's housing prices collapse from their current ridiculous levels (they never really had a full-on housing bubble deflating/bust like we had; the present day prices of housing in parts of Vancouver and Toronto make San Francisco and Manhattan look reasonable by comparison)? How much of the Canada ETF's market cap is in these banks? Are most mortgages insured by CMHC (their equivalent of FHA/Fannie Mae) so that the government will eat the losses instead of the banks? What are the rules on who has to pay for defaults after a foreclosure if there is still a deficiency once the property is sold (in some parts of Europe mortgage debt is as un-dischargeable as student loan debt is here in the United States; at the other extreme many of the western states in the USA--Cali and Texas are like this IIRC--have rules that stipulate that almost all non FHA/VA loans are non-recourse; they can foreclose, ruin your credit, and send you threatening letters but for mortgage debt secured by a primary residence they cannot sue, garnish wages, seize bank accounts, or come after you for a deficiency judgment after foreclosure unless they can prove the mortgage was fraudulently applied for in the first place)? I'd want to know more on all of this before I'd consider a large investment in Canadian stocks.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Canada EWC ETF a value play?

Post by ochotona » Thu Jul 04, 2019 10:25 am

Everyone knows about Canadian real estate and banks... it's in the Canadian MSM all the time. So is it priced in already?
Lang
Senior Member
Senior Member
Posts: 100
Joined: Tue Dec 02, 2014 7:27 am

Re: Canada EWC ETF a value play?

Post by Lang » Fri Jul 05, 2019 6:49 am

I invested in EWC in 2014 and have recently liquidated my investment. Taking dividends into account, I incurred a small loss.

I simply believe that it was and still is a bad investment. The biggest reason is that it is a USD-denominated ETF invested in CAD-denominated stocks. Therefore it is directly exposed to the CAD/USD exchange rate. In turn, this exchange rate is highly correlated with the price of oil; it is also affected by Canada-US interest rate differentials, but to a much lesser degree than you might think. The price of oil, and pretty much any commodity, is very volatile and quite unpredictable (to me, anyway; I'm not a professional commodities trader and have no interest in becoming one). For me this is reason enough to avoid this ETF.

On the top of that, almost 20% of the ETF is invested in energy companies; their stock price, again, is very correlated to the price of oil. This further reinforces my view that EWC is, first and foremost, a bet on the direction of oil prices. Unless you are interested in such a bet, I would start by looking at HEWC instead, which is the currency-hedged version of EWC. Even with HEWC, you have that 20% exposure to the energy sector, another 10% exposure to the materials sector (mostly gold and potash, which also have volatile prices) and a 40% exposure to the financials sector (which, at least to some extent, is actually an exposure to the Canadian real estate market). That's a lousy sector balance IMO.

I would also point out that two very prominent Canadian companies - Bombardier and BlackBerry - have been doing extremely bad in the past decade. They are no longer a significant component of the Canadian stock indices (or of EWC and HEWC) but no doubt their atrocious performance has weighed on the broader market back when they had a large weight in it.
Last edited by Lang on Fri Jul 05, 2019 8:59 am, edited 1 time in total.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Canada EWC ETF a value play?

Post by ochotona » Fri Jul 05, 2019 8:51 am

Yes, Canada is definitely an energy and currency play. No doubt about it. You have to know that it is, and want that kind of exposure, and when the worms (oil and US Dollar) turn, it will be good to own. It's an EM-like holding. I'm watching the momentum scores to let the price action tell me if and when. And it's not yet. But you have to have it in your watch list before the move comes. BTW, I like ZCAN better than EWC.
Lang
Senior Member
Senior Member
Posts: 100
Joined: Tue Dec 02, 2014 7:27 am

Re: Canada EWC ETF a value play?

Post by Lang » Fri Jul 05, 2019 12:05 pm

Fair enough.

You may also want to check out Australia. While Canada's currency and stock market is well correlated with oil prices, Australia's are well correlated with iron ore prices; that's their primary export, mostly to China, from what I understand. And like Canada, it supposedly has a major real estate bubble and a stock market with a heavy weight of financials. Actually, if you put EWC and EWA (the iShares MSCI Australia ETF) on a single chart their performance looks very similar!
Post Reply