Going global can be good for a portfolio
Canadians are world-class homebodies when it comes to investing beyond our borders
There are lots of things in life that we know we should do, and have a hard time accomplishing: eating that recommended daily quota of fruits and vegetables, getting enough sleep and daily exercise, spending time with our kids.
Investment experts have their own best-practice list for investors, headed up by sector and geographic diversification. Call them the fruits and vegetables of successful investing.
The experts have a point. As a nation, Canadians are world-class homebodies, up there with the Norwegians when it comes to our reluctance to invest outside our home and native land.
One way to become a global player and yet stay within your Canadian comfort zone is to buy exchange traded funds (ETFs) and individual stocks that are packed with foreign content but have that "made in Canada" imprint.
"Through the ETF landscape there is actually quite a bit; Canadians have a chance to invest outside of Canada but not leave Canada," says Heather Pelant, head of iShares at Barclays Canada.
Barclays is the biggest seller of ETFs in Canada, with an 85-per-cent share of the $20-billion market in Canadian-listed ETFs, and this close-to-home mentality has turned a few of its products into investor favourites.
Two popular funds are the iShares Canadian EAFE International Index Fund (ticker XIN on the Toronto Stock Exchange), which includes securities from Europe and the Pacific Rim, and Barclays' Canadian S&P 500 ETF fund (XSP/TSX).
Both funds are hedged to the Canadian dollar, which has fuelled their popularity, Ms. Pelant says. "You want to get into the psyche of the Canadian investor that is going abroad - the currency [fluctuation] was a very painful experience for many of them."
Another way to play the world and stay at home is Barclays Canadian Gold Sector Index Fund (XGD/TSX), which attempts to mimic the performance of the S&P/TSX global gold index. This fund has a healthy weighting of Canada's Barrick Gold Corp. (24 per cent), Kinross Gold Corp. (8.6 per cent), Agnico-Eagle Mines Ltd. (6 per cent) and Yamana Gold Inc. (4 per cent).
Preet Banerjee, a senior vice-president with low-cost index fund manager Pro-Financial Asset Management in Oakville, Ont., puts iShares' XGD fund at the top of his list of ways to play the "buy Canadian, play international" strategy.
But focusing on Canadian companies with heavy international exposure is not an easy way to invest, he cautions.
"Canada only represents around 4 per cent of the total global stock market and many people would characterize Canada as a mid-cap market - not many companies qualify as large caps on a global scale," Mr. Banerjee says. "So it may be too hard to find a lot of [Canadian] companies that have the ability to have multiple operations around the world. There are some, but not a huge number."
As well, most of the world-beating Canadian companies that individual investors might want to consider are in the big three sectors - energy, materials and financial services - which already comprise three-quarters of the market capitalization of the TSX.
"It's somewhat paradoxical," Mr. Banerjee says. "Take a step back: Irrespective of where these types of companies are domiciled, how safe are these sectors compared to the other sectors?"
Canada's big three equity sectors are tightly woven into the global economy, to investors' delight two years ago - and to their dismay more recently. "If we look at the Canadian marketplace, it is really so influenced by larger forces and larger economic drivers than what is just going on with the domestic economy," notes Garey Aitken, chief investment officer of Bissett Investment Management of Calgary.
Given the limits of the Canadian market, many companies have found that they had no choice but to take their business to a foreign stage, notes Andrew Sweeney, vice-president and co-manager of the dividend income fund of Phillips, Hager & North Investment Management Ltd. of Vancouver.
"Many Canadian companies basically have to go global because Canada is about the size of California," he says.