Under The Hood: Hockey Night For This New ETF?

Our Canadian neighbors are no doubt familiar with the CBC television network's "Hockey Night In Canada" NHL broadcast that made its TV debut in the early 1950s. As far as investors are concerned, there is a new Canada-specific ETF skating the rink these days, but since this neighborhood isn't short for residents it pays to go under the hood before jumping in. The new addition to the Canada-specific ETF fray is the First Trust Canada AlphaDEX Fund FCAN, which was part of a group of seven new country funds introduced by First Trust earlier this week. Obviously, FCAN is a potential competitor to the larger, already established iShares MSCI Canada Index Fund EWC, among other funds. EWC is the largest and oldest of all U.S.-listed Canada ETFs. FCAN, which has an expense ratio of 0.8%, tracks an equity index called the Defined Canada Index, which showed 40 constituents at the time the ETF came to market. Since FCAN is so new and data on the ETF is currently sparse on the First Trust Web site (this will certainly change in the coming days), we'll examine the index data provided in the ETF's fact sheet. The index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the index, according to First Trust. Energy accounts for almost 40% of the index's weight and its reasonable to expect that weight will be at least somewhat comparable in the ETF as Canada's economy is energy heavy. Materials account for another 21.2%. Assuming a combined weight of roughly 60% to energy and materials stocks, it could be argued that FCAN is a better reflection of the Canadian economy than EWC is. That said, the breakdown of the index's top-10 holdings merits a look because one major Canadian company is conspicuous by its absence while another that is included hasn't been doing long side investors any favors over the past 12-18 months. To clarify that riddle, we'll just tell you that Potash Corp. of Saskatchewan POT, a $39 billion market cap company and the world's largest fertilizer producer, is NOT found in the top-10 holdings of FCAN's index. However, downtrodden Research In Motion RIMM is the index's top holding. Go figure. Maybe that will work in FCAN's favor if RIM is acquired, but buying the ETF, or RIM for that matter, for that reason alone is not a valid investment thesis. FCAN's index allocated 4.35% of its weight to RIM. On the other hand, RIM accounts for just 0.57% of EWC's weight, according to the iShares Web site. Obviously, it's too early to judge just how good of an ETF FCAN will be, but to its credit, it already has $3 million in assets under management. Free advice: FCAN could eventually prove to be a legitimate rival to EWC by cutting its expense ratio and raising its allocation to stocks like Potash and Agrium AGU.