Should You Avoid This Canada-Focused ETF?

The Canadian economy shrank at an annual pace of 38.7% in the second quarter of 2020. This represented the worst slump on record. Consumer spending, business investment, imports, and exports all took a hit due to the COVID-19 pandemic.

Worse yet, experts and analysts are far from certain that an end is in sight. On the contrary, as Canada winds down its radical social spending programs many Canadians could plunge into financial disarray.

Does this mean that investors should avoid Canada-focused equities and funds? The Vanguard FTSE Canada All Cap Index ETF (TSX:VCN) seeks to track the performance of a broad Canadian equity index that measures the investment return of large, mid, and small capitalization, publicly traded securities in the Canadian market.

Shares of this ETF have dropped 1.7% in 2020 so far.

Like the broader TSX Index, this fund is still on the recovery path after a brutal start to the year. Some of the top holdings in this ETF include Shopify (TSX:SHOP), Royal Bank of Canada (TSX:RY), Canadian National Railway (TSX:CNR), and Enbridge (TSX:ENB). Shopify has carried the performance of the TSX in 2020. Meanwhile, top financials and energy stocks have lagged in the face of the pressure of this crisis.

Investors should be aware of the risks in the Canadian market and economy right now. Stocks have rebounded nicely from their March lows, but valuations have ballooned in a shaky environment. I’m looking to shore up more dependable assets as volatility looks certain to return in the months ahead.