For many, the impressive rise of the ETF industry has simplified the asset allocation process, allowing investors to construct well-balanced portfolios through just a handful of transparent, diversified securities. Most U.S. investors break their international equity exposure into two primary components: developed and emerging markets. For developed market exposure, perhaps the most popular option is the EAFE bloc, which includes advanced European, Australasian, and Far East economies.

Investors who utilize funds such as the iShares MSCI EAFE Index Fund (NYSE: EFA) achieve exposure to a diversified basket of developed economies, including the equities from the United Kingdom, euro zone, Japan, and Australia. Many investors assume EAFE ETFs cover all non-U.S. developed markets, but in reality the exposure is more accurately characterized as "ex-North America." Canadian equities don't receive any material allocation in the MSCI EAFE Index, meaning that many U.S. investors have zero exposure to their neighbor to the north.

The Canadian economy
Canada is home to vast oil and natural gas reserves, making it one of the few countries outside of the Middle East or South American that is a net exporter of energy. In fact, Canada has the second largest oil reserves, behind only Saudi Arabia. Canada is also a major supplier of agricultural products (specifically grains), and the country produces the largest amounts of zinc and uranium in the world.

Because of this resource wealth, some investors write off Canada as a commodity-intensive economy, cut from the same cloth as Brazil or Australia. But as evidenced by the composition of the ETFs discussed below, Canada's financial sector also accounts for a significant portion of GDP. Canada's banks emerged from the recent recession as some of the strongest in the world, a soft landing many attribute to the conservative lending style characteristic of the country's financial institutions.

The Canadian economy as a whole is in a very good position, expected to complete the rebound from the recession this quarter, and move into the expansion phase. While the current European debt crisis may hinder expansion, the Canadian economy appears to be in good shape to weather another storm in international markets.

Canada ETF options
For investors looking to either make a bet on the Canadian economy or round out the international equity component of their portfolios, ETFs may be a preferred tool. Below, we profile two ETFs offering pure play exposure to the Canadian economy (for more ETF ideas, sign up for our free ETF newsletter).

iShares MSCI Canada Index Fund (NYSE: EWC)
EWC tracks the MSCI Canada Index, a benchmark that measures the performance of the Canadian equity market. Following the composition of the Canadian economy, EWC allocates a heavy percentage of its assets to the financials (35%), energy (22%), and industrial materials (20%) sectors. The fund's top four holdings include three Canadian banks, and one energy company, showing that this fund has a strong foothold in the positive corners of the Canadian economy. Unlike many domestic equity ETFs, EWC is in positive territory on the year; this fund has added about 3% to date in 2010 and more than 30% over the last 52 weeks. EWC charges and expense ratio of 0.52%.

IQ Canada Small Cap ETF (NYSE: CNDA)
This ETF also offers exposure to Canadian equity markets, but is very different from the large cap-heavy EWS. CNDA seeks to replicate the performance of the IQ Canada Small Cap Index, a market cap-weighted benchmark that tracks the performance of the small capitalization sector of publicly traded companies domiciled and primarily listed on an exchange in Canada. From a sector perspective CNDA is drastically different from EWC; industrial materials (50%) is the largest sector allocation, followed by energy (19%), and financials (7%). The top ten holdings are dominated by mining companies, contributing to the heavy allocation to industrial materials. The ETF is dominated by exposure to small capitalization firms, while exposure to large or giant firms is minimal. CNDA began trading in late March of this year, and charges an expense ratio of 0.69%.

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