"Where you're invested is much more important than what you're invested in," says David Kaufman, president and chief executive officer of Westcourt Capital Corp., which advises high-net-worth clients with $1.5-billion in combined assets. "Stock-market investors in the past three years in the U.S. have had a fantastic ride, but stock-market investors in Canada have not," he adds as an example.
"More and more people are receptive to investing outside of Canada," says Mark Lin, who helps oversee about $1-billion in assets worldwide as a vice-president at CIBC Global Asset Management in Montreal. "There's definitely a tax advantage to investing in Canada, and you don't have any foreign-currency risk. But the truth is, you just don't have as many opportunities as overseas."
Here are some ideas for global plays.
It doesn't have to be in distant, exotic lands. Simply investing in the S&P 500 index, a benchmark for the biggest stocks in the U.S., has returned 44 per cent since Dec. 11, 2011, more than three times the increase in Canada's S&P/TSX composite index in the period.
High-net-worth Canadians, those with at least $1-million to invest, have about 27 per cent of their equity holdings in U.S. companies, more than twice the level of average Canadian investors (10.5 per cent), according to data from RBC Wealth Management. Over all, millionaires put about half their portfolios into stocks, according to RBC data.
"High-net-worth Canadians do look to the U.S.," says Mike Scott, managing director of RBC Wealth Management Canada. "That's turned out to be a very good thing in the last two years."
BMO Asset Management Inc., which oversees $16-billion in assets, conducts a macro-economic analysis of the world to decide where to invest, and these days it recommends Europe and the U.S., as well as Canada. The euro area is returning to growth after almost having disintegrated two years ago, and expansion will probably accelerate in the U.S. to as much as 3 per cent in 2014, says Paul Taylor, who oversees equities for BMO Asset Management. Developing countries will lose out.
"The opportunities are best in that which has been beaten up most, which is in the euro zone," Mr. Taylor says. "We're somewhat cautious on emerging markets."
In October, the International Monetary Fund cut its forecasts for economic growth in developing countries, including Brazil, Russia, India and China, the so-called BRIC countries. China should spur consumption, and Brazil and India ought to remove barriers to investment, the IMF said.
Brazil's benchmark stock index, the Bovespa, has sunk almost 14 per cent this year, one of the biggest declines among the world's equity markets.
The Indian rupee plunged to a record low against the dollar this year as the country's current-account deficit widened, and on concern the reduction of stimulus measures by the U.S. Federal Reserve would dry up money that had flowed to emerging markets.
"Brazil has slowed down, Russia has slowed down, India has slowed down," says Jean Masson, who started running an emerging-markets fund in September as part of $6.5-billion in assets he oversees at TD Asset Management in Montreal.
"We're talking about a slowdown in emerging markets, not a downright recession," Dr. Masson says. "The rate of growth that we witnessed 20 years ago until not that long ago, we're not likely to see that next year. That's a big change, because we've been accustomed to seeing them grow very rapidly."
Dr. Masson's emerging-markets fund invests in energy utilities, telephone companies and grocery stores, stocks considered less volatile than other equities because they're less sensitive to fluctuations in economic growth and yet generate similar returns over time.
Japan, the world's third-largest economy behind the U.S. and China, is giving money managers reasons to be optimistic amid signs that a two-decade stock slump is ending and that a pick-up in economic growth domestically will help fuel expansion worldwide.
Investors have already taken notice and driven up Japan's Topix stock index by 48 per cent this year, the biggest increase among the world's major markets. Topix futures contracts were the top holding of the CIBC Global Equity Fund as of Oct. 31, according to regulatory filings.
Even though China's growth is forecast to slow in 2013, the International Monetary Fund expects an expansion of 7.6 per cent, compared with 1.6 per cent for Canada's economy. Because it's difficult for individual investors in Canada to invest directly in mainland Chinese equities, a way to profit from economic growth in the world's second-largest economy is to invest in shares of companies that do business in China.
One of Mr. Lin's stock picks is Denmark-based Novo Nordisk A/S, which is the world's largest maker of insulin and whose sales are rising amid increasing rates of obesity and diabetes worldwide. Although the company's biggest markets are North America and Europe, its sales in China are climbing quickly.
"China has one of the highest rates of obesity growth, especially in big cities," said Mr. Lin. Worldwide, "the trend of population aging within the health-care sector is one of the simplest and most reliable growth stories."
Mr. Lin also likes casino operators in the Chinese region of Macau, where revenue from gambling last year was six times higher than in Las Vegas. Wynn-Macau Ltd., SJM Holdings Ltd., Sands China Ltd., and Galaxy Entertainment Group Ltd. have seen their share prices rise by between 38 per cent and 107 per cent this year.
"One of the things we like are the Macau gaming operators," Mr. Lin says. "There are only a few licenses, high barriers to entry, and a physical limitation, with only two tiny islands."
Investing in large companies that have operations in many countries and currencies helps to naturally diversify portfolios more effectively than what most individual investors could do if they set out to specifically manage geographic and currency risk.