iShares MSCI Canada ETF (EWC)
I thought I’d save my own backyard for last. It’s not that I think the U.S. markets are going to do poorly in 2014, it’s just that the iShares MSCI Canada ETF (EWC) has seriously underperformed the SPDR S&P 500 (SPY) over the past three years and is due for a little love from the ETF gods. In addition, 25% of EWC is invested in energy stocks, and many pundits are calling for the sector to continue to do well in 2014, despite signs that global economic growth is slowing.
Of the five ETF picks I’ve made, this is the one I’m most skeptical about — 38% of the portfolio is invested in financials, with six of the top 10 holdings Canadian financial institutions. I recently rated the six major Canadian banks in terms of investment attractiveness. My biggest concern with all of them is the stagnating Canadian mortgage market that’s a result of higher real estate prices and more stringent mortgage regulations. Homes are simply becoming unaffordable for many living in major cities like Toronto and Vancouver. Add the possibility of rising interest rates, and banks north of the border could face some serious revenue shortfalls.
At the end of the day, however, I see a correction coming for the simple reason that a cumulative return of -2% over the past three years when most of the rest of the world has seen equity markets do exceptionally well suggests reversion to the mean is about to set in. It might take a few months, but by mid-2014 I see good things happening for EWC despite the storm clouds hanging about.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.