Canadian investors had it good for a while there, but the S&P 500 is reasserting its dominance over the domestic equity benchmark.
The two lines in the chart below show the Canadian dollar value of a $10,000 investment in the S&P 500 and the S&P/TSX Composite made in 1990.
The relative performance of the investments can be grouped into two distinct stages. Between 1990 and 1999, a combination of the technology bubble and a strong U.S. dollar led to huge outperformance by U.S. equities.
By November 1999, the value of the hypothetical $10,000 invested in the S&P 500 was worth $32,000 more than the same amount invested in the Canadian benchmark.
The tide then turned – in a hurry. From January 2001 to January 2008, Canadian equities outperformed U.S. stocks by such a large, consistent margin that the entire $32,000 difference in the two investments was erased. The S&P/TSX continued to outperform until March 2011, when the Canadian equity portfolio was worth $5,148 more than its U.S. equity counterpart.
In short, U.S. equity outperformance lasted 10 years, from 1990 to 2000, and Canadian equities then outperformed for 11 years afterward.
The question for investors is whether another decade of U.S. market dominance has just begun. In my opinion, it likely has.