Pessimistic about Canada? Invest abroad.
A new survey from the global investing firm BlackRock has found a significant level of uncertainty among Canadians about the state of the domestic economy. Are people logically following through on this belief by putting more of their investment dollars in markets outside Canada? Not so much. The same survey suggests that 24 per cent of our investments focus on markets outside this country.
BlackRock calls this a remarkable home bias, but that may be overstating things. Let's say you had a portfolio with 60 per cent exposure to stocks and divided this money 50-50 between Canada and the rest of the world. This is a reasonable mix that would give you an overall global weighting of 30 per cent, which isn't too far ahead of the average level of 24 per cent.
Sure, there's room for Canadians to invest more globally. But we are getting better at this. In a National Bank Financial list of the exchange-traded funds with the biggest inflows of money for the year through Sept. 30, six of the Top 10 offer exposure to stock or bond markets outside Canada. The top ETF was the BMO MSCI EAFE ETF (ZEA-T), which targets stock markets outside North America and has seen inflows of $620-million. The popularity of global ETFs suggests investors are waking up to the weak relative performance of Canadian stocks in recent years. The S&P/TSX composite index averaged a total return of 5.7 per cent for the three years to Sept. 30, compared to 12.4 per cent for the S&P 500 and 13.2 per cent for the MSCI EAFE index (both the S&P 500 and EAFE indexes are in local currency).
Regardless of your view on the Canadian economy, make it a point as you review your investing results this year to consider your global exposure. Twenty-four per cent is a bit light, though not disastrously so. Remember that you can add some global exposure to your bond holdings as well as your equities through such asset classes as U.S. corporate or high yield bonds.
Young people are taking a lot of guff these days because of their cautious attitude toward investing in stocks, but they seem to be getting the message about global investing. BlackRock found that 28 per cent of investments held by people between the ages of 25 and 34 had exposure outside Canada, compared to 20 per cent for people aged 55 to 64 and 22 per cent for those aged 65 to 74. The BlackRock survey included 2,000 Canadians and was conducted during the summer.
Rob Carrick