Why invest abroad?
Many investors already diversify their portfolios by holding securities across different asset classes and sectors, but it’s important to diversify globally as well. Adding global exposure to your portfolio, meaning investing in financial markets outside of Canada, may increase returns and reduce volatility. Increasing global exposure can also reduce country-specific risk and allow portfolios to harness the economic growth and innovation that’s occurring outside our borders.
Canadians tend to hold the majority of their assets within their own domestic market (an investing tendency referred to as home country bias). With the average Canadian allocating only approximately 10% of their assets outside of Canada, their investments are primarily focused in a Canadian stock market that represents less than 4% of the global market capitalization.
Source: Investor Economics Household Balance Sheet Report 2017, data as of December 2016.
Investing globally can improve sector diversification as a portfolio gains exposure to industries under-represented in Canada. Our market is dominated by the Resources and Financials sectors. Health Care, Information Technology, Industrials and Consumer Discretionary (and the opportunities that come with them) only make up 20% of Canada’s stock market.
If you are not investing outside of Canada, you may be missing out on opportunities arising from global healthcare innovations and ground-breaking research.
Canada is heavily reliant on two cyclical sectors – energy and resources – which tend to experience higher levels of volatility on a year-to-year basis, particularly relative to countries like the U.S. This volatility can be reduced by supplementing Canadian exposure with global exposure, as the two portions of the portfolio may respond differently to the ever-changing macro-economic environment, including the market’s relationship with interest, exchange, and inflation rates.
Investors should review their asset mix to ensure they’re effectively positioned to benefit from growth opportunities around the globe, instead of relying solely on the strength of Canada’s economy and commodity markets to reach their investment goals.
Adding diversification through increased exposure to global market opportunities and reducing “single country risk” should be a consideration for every investor, regardless of risk profile.
Source: Strategy & 2015 Global Innovation 1000 analysis, Bloomberg data, Capital IQ data.
This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Please consult your advisor and read the prospectus or Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, BlueBay Funds and PH&N Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers.
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