Under The Hood: Oh, Canada...Small-Cap Style

At this point in the evolution of the ETF business, there are no shortage of country-specific small-cap ETFs, an investment theme that has proven quite popular with investors looking for emerging markets exposure. While small-cap emerging markets ETFs have a little bit of added cache, there are a few developed market small-cap ETFs out there and perhaps one of the best is the IQ Canada Small Cap ETF CNDA, one of the first ETFs in IndexIQ's suite of five country-specific small-cap plays. Home to 98 stocks and an expense ratio of 0.69%, CNDA, which made its debut in March 2010 has nearly $70 million in assets under management, making it one of the biggest of IndexIQ's by assets. (The firm had $450 million in assets under management as of the end of June). CNDA is not an ETF littered with speculative junior mining stocks that email hucksters love to pump and dump. Rather the weighted averaged market cap of the ETF's holdings is $2.35 billion and in many respects, CNDA is more representative of the Canadian economy than the larger iShares MSCI Canada Index Fund EWC. If you're looking for sector diversity, CNDA isn't going to be your cup of tea as materials and energy stocks account for nearly 72% of the ETF's weight, adding beta to this ETF and indicating that is indeed levered to oil and precious metals prices. Then again, having exposure to oil and precious metals prices isn't such a bad place to be these days, particularly in the case of metals. CNDA delivers as materials account for over 42% of the fund's weight. Have reservations? Perhaps you're thinking “If I'm going to play Canada, I want Potash POT and Suncor SU, so I'll just buy EWC.” Or maybe you're thinking about a pure play on Canadian energy names in the form of the Guggenheim Canadian Energy Income ETF ENY. Forget those notions. In the past year, CNDA has outperformed both EWC and ENY and by “outperformed,” we mean by very wide margins. Past performance is no predictor of future results, but with precious metals on a tear, investors seeking northern exposure could do a lot worse than CNDA.