Friday’s ETF To Watch: CNDA

by on July 9, 2010 | ETFs Mentioned:

With the American economy treading water, many are looking north for investment opportunities in the resource-rich nation of Canada. While Canada’s financial system has held up better in the wake of the global economic crisis, it has also seen surging unemployment levels as a result of declining demand for many of Canada’s primary exports. With a recent report out of the U.S. showing that initial unemployment claims fell to their lowest levels since early May, some investors are starting to hope that the job situation has finally bottomed-out. Now, all eyes will be on Canada to see if the neighbors to the north can show a similar improvement [see Do You Need A Canada ETF?].

Later today, Canada will release key figures regarding the unemployment rate and the net change in employment in the country for the month of June. Analysts are expecting the unemployment rate to stay at 8.1%, while the change in employment is expected to increase but at a more modest pace than last month (20k this month compared to 24.7k in the previous month). Should these rates deviate from the current projections it could have a huge impact on Canadian equity markets and the Canadian dollar, especially given recent news on the jobs front out of the U.S. and the overall choppy economic situation in the world economy. “The concerns are still there,” said Matthew Strauss, senior currency strategist at Royal Bank of Canada, “with the global recovery not being as robust as expected and fiscal difficulties in Europe. We’ll have to wait for the employment data (later today). That’s going to be an important catalyst for Canada.”

Against this backdrop, look for the IQ Canada Small Cap ETF (CNDA) to be in focus for the last day of trading in the week. CNDA offers exposure to small cap Canadian stocks, accessing a group of stocks that could be dramatically impacted by unemployment levels in the country. CNDA has about 100 holdings, with more than half of assets going to the industrial materials sector. CNDA is a relatively new ETF, and trading volumes are still somewhat light; investors would be well served to utilize limit orders when making a plan on the local Canadian economy [also see Warning: Use Caution When Investing In Currency ETFs Of Commodity Dependent Nations].

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Disclosure: No positions at time of writing.