Personal Investor: Canadians feel the sting of home country bias
There are plenty of good things about Canada. Canadian equities are not one of them.
After this week’s market plunge, the Toronto Stock Exchange is a mere 1.6 per cent above its 2008 pre-meltdown high.
The blow is cushioned a bit if you include dividends. Over the same period, the TSX real return index advanced 38 per cent, but that still translates into annual returns of 3.2 per cent.
If a 2014 survey from Vanguard is accurate, many Canadian retail investors could be in big trouble. It found 60 per cent of the average Canadian equity portfolio consisted of only Canadian equities. It’s called “home bias” and most countries have some degree of favouritism toward their own markets.
The trouble is Canadian equities only account for about three per cent of all publicly-traded stocks in the world. Of that tiny sliver, roughly one-third are resource related and another third are financial. In comparison, the United States is home to about half of all publicly-traded stocks and they are diversified across every sector from technology to retail.
If you are a Canadian investor with a heavy weighting in Canadian equities, it’s too late to turn back the clock, but a meeting with a financial advisor might be in order to rebalance your portfolio over time. Most Canadian trading accounts have open access to U.S. equity markets and there is a vast array of foreign equity mutual funds and exchange-traded funds available on the market.
If it’s any consolation: the Canada Pension Plan Investment Board (CPPIB) read the writing on the wall long ago. Only 31 per cent of its investment are in Canada.