As Europe continues to kick the "can down the road," with regards to its debt problems, and the United States. still facing high unemployment mixed with meager consumer spending, developed market investors are certainly in a quandary. These persistent fiscal and policy worries are contributing to recurring and increasing volatility in financial markets. With growth in these two major regions set to slow in 2012, finding developed market investments will certainly be challenging in the near term. One such opportunity could lie with our, often ignored, neighbor to the North. Canada could represent one of the best plays in the developed world, and be a source of portfolio strength in the years ahead.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

More than Just Hockey Night
For investors wanting to stay in the developed world, Canada continues to offer an intriguing choice. As a commodities super power, the nation has all the necessary ingredients that fast-growing countries in Asia and South America need to build infrastructure, and support increasing newly found consumerism. Canadian commodity exports to Asian-Pacific nations, are on track to rise nearly 60% this year. According to the Petroleum Services Association of Canada, this rise in oil and natural gas prices will cause drilling activity within the nation to grow by 10% in 2012. Overall, the nation has benefited from the rise in commodity prices, and many of its firms like Canadian Natural Resources (NYSE:CNQ) have been seeing increasing revenues. (For related reading on commodities, see Commodity Prices And Currency Movements.)

These exports of energy, agricultural and mineral commodities have helped create a stable and growing jobs base when compared to the U.S. Canada's unemployment rate currently sits at 7.1%. Unemployment hasn't been this low since December 2008, and continues to fall. A recent Statistics Canada report shows that Canadian employers hired more than 60,000 new, full-time workers in August, besting consensus analyst estimates by more than six times. In addition, year-over-year average weekly earnings grew by 2.2% in the last quarter, and Canadians have more equity in their homes due to tighter lending standards versus the U.S.

The nation's fiscal responsibility extends to its government and banking sectors as well. Canada offers one of the lowest Debt-to-GDP ratios of any developed market nation. Canada's net debt to GDP ratio of about 30%, compares favorably against the G7 average ratio of about 70%. This provides the government flexibility to enact meaningful stimulus measures without over burdening the public treasury. Additionally, Canadian banks consistently rank among the world's most sound, and didn't make the same sort of risky subprime real estate loans that their U.S. sisters did.

Adding Exposure to the Maple Leaf
Canada makes a great developed market play, and investors should consider the nation for their portfolios. The easiest way to add Canada is through the iShares MSCI Canada Index (ARCA:EWC). The exchange-traded fund (ETF) follows 103 different Canadian firms such as Royal Bank of Canada (NYSE:RY) and Goldcorp (NYSE:GG). The ETF yields 1.8%. Investors can also use the Global X S&P/TSX Venture 30 Canada ETF (ARCA:TSXV), which bets on small cap Canadian firms. However, there are plenty of individual strong ways to add the nation to a portfolio.

Valeant Pharmaceuticals (NYSE:VRX) is an interesting play. Instead of spending money on research, Valeant buys older, steady selling brand-name drugs, and over-the-counter generics in niche markets. The company has been pretty successful in executing this strategy. Additionally, investors with stronger appetites might be interested in Canadian biotechs Cardiome Pharma (Nasdaq:CRME) and AEterna Zentaris Inc (Nasdaq:AEZS).

Moving Canada's vast array of commodities towards ports for export, is the job of both Canadian National Railway (NYSE:CNI) and Canadian Pacific Railway (NYSE:CP). The railways have also benefited from the growth in Canada's economy, and traffic has picked up. The pair offers a play on vital infrastructure as well as strong dividends. (For more on railways, see A Primer On The Railroad Sector.)

The Bottom Line
With the majority of the developed world still facing problems, Canada is a beacon of growth. Fiscal discipline, along with a wealth of natural resources, makes it an ideal portfolio choice. The previous firms, along with the IQ Canada Small Cap ETF (ARCA:CNDA) make great additions.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  6. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  9. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  5. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  6. Optimal Currency Area

    The geographic area in which a single currency would create the ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!