Focus on North America: Addressing ‘the Canadian question

Although it is easy to bypass them when considering North America there are a number of other markets besides the US that can offer a different type of exposure for those investors who seek it.

A number of funds offer exposure to Canada – both actively and passively – but a key question for those seeking such exposure may be to what extent it offers better or worse performance than key North American indices such as the S&P 500 or Russell 3000.

Filtering FE data for some 230 funds with more than 25% exposure to Canada serves up a number with high double digit, or even triple digit performance over the past three years.

The ten best by performance are listed below, along with their annualised volatility scores and Canadian exposure. Returns are rebased in euros.

Fund Performance Annualised Vol. Canada exposure
Middlefield International – Middlefield Canadian Income Trust I TR in EU 147.62 17.61 100
Quantex – Strategic Precious Metal D1 CHF in EU 86.87 28.36 63.6
AGF – Monthly High Income TR in EU 74.03 11.51 64.5
Swiss&Gbl Asset Mgt (Lux) S.A. – Gold Equity USD B in EU 70.35 26.39 60.3
Swiss&Gbl Asset Mgt (Lux) S.A. – Gold Equity CHF B in EU 68.43 26.24 60.2
Swiss&Gbl Asset Mgt (Lux) S.A. – Gold Equity EUR B in EU 68.15 26.04 60.2
Reyl – (LUX) Global North American Equities B USD in EU 67.42 14.28 26.8
Ahead – Oak Tree Junior Mining & Exploration in EU 56.8 33 78
Morgan Meighen & Associates – Canadian World in EU 55.44 17.25 27.6
Morgan Meighen & Associates – Canadian General Investments TR in EU 54.33 22.85 100

Of note is the fact that funds can perform well with a high, but not total, Canadian exposure.

One stands head and shoulders above the others: the Middlefield Canadian Income Trust.

This is one of the funds that does offer a 100% exposure. The performance has been sourced from a spread of investments, particularly into the basic materials, utilities and industrials sectors, along with investments in fixed income.

However, this is a Jersey-based investment trust, which means it may not be available in all markets.

In contrast, the Morgan Meighen & Associates Canadian General Investment fund – also an investment trust – has only delivered about a third of the performance, admittedly with slightly more volatility, over the period while offering 100% exposure.

However, the fund still beats the key Canadian TSX index, as shown in the graph below.

The issue of currency is also worth noting when it comes to funds with Canadian exposure.

The different share classes of the Swiss & Global Gold Equity fund suggest this. There is also an issue of asset class exposure to consider in this example. The S&G fund aims to invest in securities from the gold industry.

While the metal may be mined by a Canadian company, the commodity then sells in US$. With the strenghening of Canada’s dollar in recent years, this poses margin challenges for companies with a higher proportion of Canadian dollar operating costs.

Roughly half of the top 10 performing share classes identified above do better than returns from either the S&P 500 or Russell 3000, although their volatility tends to be higher, suggesting that this is something investors in Canada need to be aware of.

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