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It’s a big, wide world. Yet, many Canadians have a disproportionate percentage of domestic equities in their portfolios¹, augmented by some U.S. equities and then a sprinkle of international holdings.

The Canadian equity market accounts for about three per cent of the total value of global markets². Even with exposure to the U.S., the largest equity market on the planet, investors are missing out on a world of opportunity, says Jean-Francois Girard, manager of mutual fund and guaranteed investment development at Desjardins.

Moreover, the U.S. market tends to be driven by a concentrated group of companies. These include technology companies like Apple Inc. AAPL-Q, Inc. AMZN-Q, Microsoft Corp. MSFT-Q, Alphabet Inc. GOOGL-Q and Nvidia Corp. NVDA-Q. These five stocks alone have at times accounted for about a quarter of the S&P 500′s market cap this year.

As well, these companies attract a lot of investor capital, meaning the U.S. market is arguably pricey by many financial metrics relative to Europe and other markets, Mr. Girard says. “That’s why investors need to look to other developed markets to diversify their risk.”

Advisors can play a key role in ensuring clients get risk-adjusted exposure to developed markets outside North America. These markets include companies that are global leaders in their respective industries, such as ASML Holding NV ASMLF, a specialist in the semiconductor sector, or LVMH Moët Hennessy Louis Vuitton SE LVMHF, a world leader in luxury goods.

Although some global companies trade as American depositary receipts on the U.S. equity markets, others require trading platforms with direct access to foreign markets, Mr. Girard says.

“While a lot of advisors will select U.S. and Canadian stocks on their own, they look to a mutual fund or an exchange-traded fund (ETF) to get that international exposure.”

He says many prefer actively managed funds over passive ones. That’s because their managers have expertise in these markets to find exceptional companies to invest in. Desjardins is among the Canadian investment industry leaders in providing exposure to diversified international markets curated by active management, Mr. Girard adds.

One reason is its “open architecture,” which doesn’t restrict Desjardins to in-house portfolio management.

Instead, the company has forged strong partnerships with the world’s leading portfolio managers for international equity strategies. That includes renowned Edinburgh-based Baillie Gifford & Co., which has built its reputation by finding outlier high-growth companies that address challenges and see rising demand.

Another notable Desjardins partnership is with PineStone Asset Management Inc., a Montreal-based employee-owned and founder-led firm managing about $50-billion in assets. The award-winning team runs the Desjardins Overseas Equity Fund, which ranks first among its peers with five-year annualized performance of nine per cent, according to Morningstar Canada³.

“PineStone’s management team does a deep analysis of companies that’s second to none,” Mr. Girard says. “This affords them high conviction that each company they choose is a great investment for the long term.”

In turn, the fund’s portfolio is not watered down with hundreds of positions, essentially mimicking a broader index. Rather, it holds 25 to 35 large-cap, equity positions across Europe, Australia, Japan and Taiwan.

One result of this approach is low turnover of positions. For investors, that means higher after-tax returns. Low turnover of holdings also exemplifies management’s confidence in its stock selections. That’s in contrast to selling off companies with temporarily sagging performance to purchase the next, hot prospect. Such a strategy is likely to fizzle out, he suggests, leading to higher volatility and inferior returns for the fund in the long-term.

The Desjardins fund holds a few dozen stocks, but tracks a much larger universe of companies, often a few hundred that potentially fit its criteria.

To narrow the search, the Desjardins Overseas Equity Fund management team – led by Nadim Rizk, PineStone’s lead portfolio manager and CEO – uses proprietary analysis tools and sector expertise that identify the top quartile performing companies in their respective geographies and industries.

Further analysis, including using environmental, social and governance criteria, finds the most reasonably priced stocks relative to their intrinsic value to create a portfolio.

While concentrated to a maximum of about 35 companies, the holdings cut across several geographies and industries.

“So, even though it’s a high-conviction portfolio, diversification of drivers and investment theses remains a key strategy,” Mr. Girard says.

The strategy’s track record speaks for itself. PineStone’s international equity strategy has run for a decade, including before its partnership with Desjardins, garnering many awards. It has also received a five-star rating from Morningstar Canada.

Since its launch in 2019 under PineStone’s guidance, Desjardins Overseas Equity Fund has had an annualized return of about nine per cent, while the overall strategy has averaged more than seven per cent since inception in 2013.

“That’s why investors are buying this fund,” Mr. Girard says.

It’s why advisors are, too, on their clients’ behalf, confident they’re investing their clients assets in a portfolio that provides risk-adjusted growth for the long run, he adds. Growth is important, but it’s really about finding high-quality companies that are global leaders in their industries at a reasonable price.

The Desjardins Funds are not guaranteed, their value fluctuates frequently, and their past performance is not indicative of their future returns. The indicated rates of return are the historical annual compounded total returns of the date of the present document including changes in securities value and reinvestment of all distributions and do not consider sales, redemption, distribution or other optional charges, or income taxes payable by any securityholder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The Desjardins Funds are offered by registered dealers.

Desjardins®, all trademarks containing the word Desjardins, as well as related logos are trademarks of the Fédération des caisses Desjardins du Québec, used under licence.

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³ 2023 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Advertising feature produced by Globe Content Studio with Desjardins. The Globe’s editorial department was not involved.

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