Canada is often overlooked when it comes to global-scale stories. Few understand, for example, the role Canadian troops played in the D-Day assault or in the campaign to extend the Normandy beachhead in the summer of 1944. Nor is it well known that Canada has suffered the highest proportion of casualties among the coalition of the willing now engaged in Afghanistan.

In the immediate aftermath of a cataclysm as significant as any other during the past half-century Canada’s economy is stronger than those of any of its G-7 peers. The stress test of the Great Recession has separated Canada from the US, Japan, Germany, France, the UK, and Italy because it entered the period in sound fiscal condition. Also, its financial system was adequately regulated, and there was no subprime-style mania infecting its housing market. And data reported by Statistics Canada last week suggest the world is paying attention to the Great White North.

This new ardor is positive, obviously from the short-term perspective that it’s lifted values of assets denominated in Canadian dollars, including income trusts and high-yielding corporations. That interest from abroad is at new highs is also cause for caution: A lot of this money is new and perhaps a little skittish, particularly in the wake of market action from mid-2007 through 2009. We’re bullish on Canada for the long-term–the next decade–but that doesn’t mean we’re not mindful of the possibility of short-term corrections. The loonie will reach parity, and fundamentals suggest it’ll linger at or above even with the greenback for an extended period. But a pullback to the low to mid-90s in US dollar terms can’t be ruled out.

In the grand scheme, however, Canada’s star is on the rise. Foreign investment in Canadian securities increased for the 13th straight month in January, with a total of CAD11.83 billion pouring into the country. In 2009 foreigners purchased a record CAD109.79 billion worth of Canadian securities, much of these funds favoring government and corporate debt. Since April 2009 foreign funds had flowed from short-term paper to longer-dated bonds and equities; this trend reversed in January 2010, as more foreign money flowed into money market accounts. January was a rough first month of the year for global equities, but the longer-term trend in favor of all things Canadian held. The 12-month running foreign inflow is CAD111 billion, also a record. Foreign investment alone is sufficient to fund Canada’s public debt, and the cost for the government to borrow is relatively modest.

There are reasons for optimism as well as for caution with regard to Canada right now. Comfort can be found in the unique factors supporting the economy for the long term. Responsible fiscal and monetary policy left the government in good position to respond to the global downturn; federal finances were structurally sound, which allowed stimulus efforts to have their Keynesian impact. Canada’s financial system hasn’t sapped the taxpayer for bailout cash that might otherwise go to infrastructure spending.

Not least, provincial and federal authorities have, rarely in a world historical context, effectively managed the country’s ample resource wealth over the long term. This factor further separates Canada from its developed-world peers–as well as from the sad ranks of those countries that because of official incompetence and/or greed have failed to exploit commodities for the benefit of their people generally. Its store of natural resources–primarily hydrocarbons but including minerals and agriculture commodities as well–means not only has Canada fended off threats to its structural integrity in the form of rapacious financiers and spendthrift politicians. It’s put itself in position to benefit from the good fortune of this abundance. Emerging economies such as China want what Canada has in the ground. Investors interested in sustainable income and growth will look to the Great White North as well.

More Numbers

On March 12 StatsCan announced that 20,900 new jobs were created in February, which pushed Canada’s unemployment rate down from 8.3 percent to a 10-month low of 8.2 percent.

Canada has added 159,000 jobs since July 2009, but this only partially makes up for the 417,000 that were lost between the previous employment peak in October 2008 and July 2009. Sixty-thousand full-time jobs were added in February, which was partially offset by a loss of 39,000 part-time jobs. This suggests the employment recovery is durable–the quality of the underlying data is strong.

Since the summer of 2009 the number of public and private sector employees has risen, while self-employment has edged down. February’s gains were made in accommodation and food services; business, building and other support services; manufacturing; health care and social assistance; and natural resources. Losses occurred in retail and wholesale trade; finance, insurance, real estate and leasing; and “other services.”

Manufacturing, thought to be at risk because of the stronger Canadian currency, added 17,000 jobs. The natural resources sector added 11,000 workers in February, continuing growth that got underway in the early fall of 2009. Manufacturing seems to have stabilized, while signs of an awakening resource sector abound.

The official data agency also reported last week that core inflation rose 2.1 percent in February, more than expected and perhaps enough to seal a July rate hike by the Bank of Canada (BoC). The consensus forecast was a decline to 1.7 percent from 2 percent on an annualized basis. Total CPI inflation was 1.6 percent in February, above the 1.4 percent consensus expectation but down from 1.9 percent in January.

BoC Governor Mark Carney has said all along that the relevant factor in the BoC’s “conditional commitment” to keep rates at the lower bound is inflation. Two percent inflation is the ideal level within the BoC’s target range. According to the BoC website:

This target is expressed in terms of total CPI inflation, but the Bank uses a measure of core inflation as an operational guide. Core inflation provides a better measure of the underlying trend of inflation and tends to be a better predictor of future changes in the total CPI.

The BoC has kept its target for the overnight interest rate–the rate at which major financial institutions borrow and lend overnight funds among themselves–at 0.25 percent since April 2009, pledging to keep it there until “the second quarter of 2010 in order to achieve the inflation target.” Total CPI at 1.6 percent is still below the 2 percent target. The BoC will meet April 20, June 1 and July 20. The weight of the evidence suggests Carney will act according to his word and hike in July.

Act Now

Are you serious about investing in the Canadian story? Join Roger Conrad in sunny San Diego, California, April 23-24 for the 2010 Wealth Society Member Summit. You’ll have a chance to sit down with Roger one-on-one to talk about where to find the best ideas to generate total returns as Canadian income trusts convert to high-yielding corporations and how to position your portfolio for the year ahead.

Join Roger and his colleagues GS Early, Elliott Gue, Yiannis Mostrous, and Benjamin Shepherd at the historic Hotel del Coronado–one of the top 10 resorts in the world according to USA Today, one of the top 20 hotel/spas in the world according to Travel + Leisure, and the No. 2 place in the world to get married, according to the Travel Channel.

And on April 23-24, Coronado Island will also be the best place in the world for relaxation and profit. We’re expecting 72 degrees, sun and fun. You may find all details at www.InvestingSummit.com.

Call 1-800-832-2330 (between 9:00 a.m. and 5:00 p.m. EST Monday through Friday) or go online now to reserve your seat at the table. Space is limited.

The Roundup

Conservative Portfolio Holding Atlantic Power Corp (TSX: ATP, OTC: ATLIF) will finally bring the fourth-quarter and full-year 2009 reporting period to an end on March 29–just about in time to usher in first-quarter 2010 earnings season.

We look forward to Atlantic’s numbers not only because of its symbolic value as the company to close the books on 2009. We’re also at least slightly curious as to whether there’s anything substantive underlying the stock’s 6 percent decline on Monday. More likely, however, we’re seeing anxious investors book gains on big winners or, more quizzically, get stopped out of solid performers.

Atlantic Power–operationally as well as in the financial market–has proven itself during the global recession that got underway in late 2007. Since November 2007 the stock is up more than 16 percent in US dollar terms on straight price appreciation and has returned more than 50 percent including dividends. The S&P/Toronto Stock Exchange Composite is down 20 and 14 percent, the S&P 500 25 and 21 percent, in respective terms. The company continues to add cash-generating projects under long-term power purchase agreements. It provides the type of predictable cash flow that sustains a payout for the long term.

Here are the remaining three Conservative Holdings’ numbers, as first reported in last Friday’s Flash Alert. Next week we’ll be back with our regular tour through the How They Rate coverage universe–and Atlantic Power’s numbers.

Artis REIT’s (TSX: AX-U, OTC: ARESF) fourth-quarter distributable cash flow and funds from operations per share dipped 25 percent from 2008 levels, largely due to the cost of repositioning its Western Canada portfolio. Underlying portfolio health, however, remained strong. Occupancy rose to 98.1 percent including committed space and 96.6 percent based on current tenancy.

That was in large part due to management’s strategy of acquiring properties with below-market rents in the good times. Despite a glut of properties–particularly in its core Alberta market–average rents rose 10.3 percent from fourth-quarter 2008 levels, while rents on renewing leases rose 16 percent for the year. Net operating income–the best measure of portfolio profitability–rose 5.2 percent in the fourth quarter versus year-earlier levels. And, despite the shortfall in distributable income, the distribution remains well covered by cash flow.

Artis has also realized the benefit of spacing out expiring leases in its portfolio. Coupled with high tenant quality, that’s allowed the REIT to weather the property downturn better than the vast majority of competitors. Only 15.9 percent of the portfolio’s leasable area is up for renewal in 2010; an additional 14.4 percent is set to expire in 2011. And to date management has renewed nearly half of expiring leases in 2010, along with 15.9 percent of 2011 leases. Tenant retention thus far is a superior 83.3 percent, with a weighted average rental increase of 7.2 percent achieved on renewing leases.

Looking ahead, Artis’ fortunes will depend heavily on what happens in Alberta, home to nearly half of its properties. But that should be a major plus as the energy patch continues to rebound.

Meanwhile, with nearly 10 percent of rents coming from government entities and another 56 percent from blue chip “national” tenants, it remains well protected if markets rebound slower than expected. That’s a powerful reason to buy Artis REIT up to USD12 if you haven’t already.

Northern Property REIT’s (TSX: NPR-U, OTC: NPRUF) per unit fourth-quarter funds from operations fell 5.9 percent. The primary reason: Properties in northern Alberta–particularly in the apartment portfolio–and resource-producing areas in the Northwest Territories and Nunavut continue to suffer from a supply glut. The REIT also incurred more maintenance capital expenditures at its portfolio, as it took advantage of vacancies to upgrade properties.

Happily, in the words of president and CEO Jim Britton: “Outside of Alberta our portfolios weathered the recession very well. We were helped by lower heating oil costs, lower mortgage interest rates and decreased trust administration expense. And the REIT is now experiencing apartment rental market improvement across our system.”

That augurs well for 2010 and beyond. But Northern’s greatest appeal is, despite these very tough conditions, its payout ratio (73 percent in the fourth quarter), balance sheet (debt just 57.7 percent of book value) and top-notch portfolio quality ensure investors’ fortunes even if Canada’s energy patch takes longer than expected to bounce back. Northern Property REIT is a buy for those who don’t own it already anytime it trades below USD22.

IBI Income Fund (TSX: IBG-U, OTC: IBIBF) took its fee-for-service revenue base up 15.1 percent in 2009 to a new record. Like Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF), IBI had converted the bulk of its business from the private sector–which remains depressed in Canada as well as the US where the trust has recently expanded rapidly–to the public sector over the past couple years. Today some 65 percent of business is public-sector related.

Currency adjustments due to the rising Canadian dollar took an 8.6 percent bite out of cash flow and led to a 12 percent decline in distributable cash flow. Excluding one-time factors, however, the payout remains well covered. Moreover, management has since largely eliminated currency swings as a factor in the future by balancing debt interest against US dollar receivables.

Looking ahead, IBI is well positioned to continue its growth-through-acquisitions strategy and has expanded its infrastructure design services operation to China as well. A 10 percent increase in staff in 2009 made the trust one of the few businesses in North America to expand its global capability, a competitive advantage that should pay off richly with the world economy on the mend in 2010 and beyond. That should keep IBI’s underlying business growing, and margins should turn again to the upside this year and beyond.

If there was anything disappointing about IBI’s results it was that management said nothing concrete about its plans to convert to a corporation, and particularly about its post-conversion dividend plans. The next major opportunity will be when first quarter earnings are announced, which should be some time in May.