Time to look at Canada Equity ETFs? Yes, if you are looking to invest in a safe developed economy, to add some global diversification to your stock portfolio.

An internationally diversified portfolio should have exposure to both emerging markets and developed markets. (Read Create a Diversified Portfolio Using ETFs). With ongoing problems in the Eurozone, there are not many choices left in the developed world outside of US. The International Monetary Fund (IMF) yesterday cut its growth forecast for most advanced economies, for this year and the next year, citing “intensifying strains in the euro area" weighing on the global outlook. Per IMF, Canada’s economy will grow 1.7% in 2012 and 2.0% in 2013. While the growth estimates are lower than those put out by the Bank of Canada (2.0% and 2.8% respectively), just about a week back, they are still among the highest in the developed world. After the recent downgrade by the Standard & Poor's, Canada is now one of few countries left with AAA credit rating.

Canada is a world leader in production of gold, zinc, nickel, potash, cadmium, copper and lead. With its vast natural resources, it is also one of the largest exporters of forest products, agricultural commodities and a net exporter of energy.

Our northern neighbor has a sound financial system, a relatively steady political system and a strong government balance sheet. (Also read Is It Time To Buy The New Zealand ETF?)

Bank of Canada estimates that the Canadian economy grew by 2.4% in 2011 and projects that it will grow by 2.0% in 2012 and 2.8% in 2013. Core inflation and longer term inflation expectations remain consistent with the 2% inflation target of the Central Bank.

Canada’s banks are well managed, well regulated and well capitalized. The World Economic Forum has ranked Canada’s banking system as the most sound in the world, four years in a row.As a result of stringent regulatory norms and conservative lending practices, the Canadian banks had emerged largely unscathed from the global financial crisis. This is important since the ETFs mentioned below are heavily invested in the financial sector in Canada.

Main challenges to the Canadian economy emerge from the events in Europe and slowdown in China. On the domestic front, growing household debt poses some threat to the health of the banking system.

Here is an introduction to three popular Canada equity ETFs:

iShares MSCI Canada Index ( EWC - ETF report )

The ETF tracks the performance of MSCI Canada Index. Created in 1996, the ETF is heavily weighted towards financials (32.67%), followed by energy (27.09%) and materials (20.41%). With assets totaling ~$4.8 billion, and average volume of 2.5 million, this is the most liquid and easy to trade Canada Equity ETF.

db-X MSCI Canada Currency Hedge ( DBCN - ETF report )

This fund provides access to Canada with a built-in hedge against currency fluctuations. It tracks MSCI Canada US Dollar Hedged Index, which hedges Canadian dollars to the U.S. dollar by selling Canadian dollar currency forwards at the one-month forward rate. Due to hedging, this fund underperforms other Canadian ETFs, when the Canadian currency rises against the US dollar and outperforms when the Canadian dollar depreciates against the US dollar. Further by hedging currency risks, it also takes away the benefits of currency diversification associated with International investing.

IQ Canada Small Cap ETF ( CNDA - ETF report )

This ETF tracks the IQ Canada Small Cap Index, which is a rule based, modified capitalization weighted, float adjusted index of the small capitalization sector of publicly traded companiesin Canada.

The fund is largely comprised of materials (45.71%) and energy (27.35%) stocks and hence can be used as an indirect play on the commodities and even emerging markets (since the demand for commodities in growing mainly in the emerging markets).