The Best Way to Invest Above the 49th Parallel

canadian-flagThe hockey-loving, continent hog from directly above the U.S. has been quietly thriving for the last few decades.
That’s right, Canada.
As a Vermonter, I have the privilege of being border buddies with our brothers above. It gives me access to an array of beautiful cities and some of the most spectacular terrain the world has to offer. But it also gives me a glimpse into a prosperous economy that is often overlooked by individual investors.
As a net exporter of commodities including mostly oil and gas, Canada is a clear beneficiary of higher commodity prices. With a significant portion of Canada’s exports coming from the energy sector, continued price growth is a windfall for the nation’s GDP growth. In the financial markets, the strong positive correlation between energy prices and Canada’s stock index (NYSE: EWC) is instrumental in identifying trends. With a bullish view on the commodities, particularly energy prices, I think that EWC will distinctly benefit, given the ETF’s overall weight in oil and natural gas.
As investors, we often hear about the potential in Europe, Asia, Latin America or even Africa. But rarely do you hear investors discuss the prospects for becoming a shareholder above the 49th parallel.
Global diversification expands your universe of opportunities, increases your potential returns and lowers your overall portfolio risk. If you are even a modestly sophisticated investor, you likely own a few stocks or ETFs in Europe, Asia or Latin America.
My Favorite Way to Invest in Canada
Most would tell you to simply buy shares in EWC, collect the 2.2% dividend and move on to the next investment.
Yes, that would be one way to play it.
But I have a better way, at least in my opinion, to invest in Canada.
Below is one-year chart of EWC with blue circles at the bottom indicating promising entry points. As you can see, for the third time since December, EWC has pushed into an oversold state. As a contrarian, I prefer to buy things when they are out of favor and that is basically what “oversold” indicates.
But I also like to sell options, mostly for income purposes, but to also finance the purchase of an asset while simultaneously hedging downside risk. I would encourage any investor to consider selling covered calls, at least with a portion of your portfolio.
Some of you are already in the process of building an income portfolio of blue-chip, dividend-paying stocks and ETFs. But you should also create additional income on your basket of low-volatility, blue-chip stocks by selling covered calls, and EWC is the perfect candidate.
Let’s assume you paid today’s price of $32, or $3200 for 100 shares of the ETF. At today’s share price you can generate, on top of the 2.2%, $50 every three months selling EWC calls roughly 3% or one strike out-of-the-money. That’s roughly $200 annually for every 100 shares for a return of 6.3%, almost tripling the 2.2% dividend . . . for a total yield of 8.5%.
It’s an incredible way to make more income on the stocks you currently own, as long as you don’t feel bad if that stock goes to $40, $50 or $80 over the course of three months.
That is why it’s best to use a covered call options strategy on blue-chip, dividend-paying stocks and ETFs like the iShares MSCI Canada ETF (EWC). The chance of them advancing 20% in three months is slim to none.
If you would like to learn more about how I use options for monthly income, don’t forget to take a look at my most recent webinar.

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