Investment consulting firm Segal Rogerscasey Canada says in a new report that the tendency to favour investments in domestic companies and securities “creates a long-term disadvantage in an investment portfolio”. And, it says, that most Canadian investors still exhibit such a bias.
While the report doesn’t quantify this claim of Canadian investors’ bias, it does attempt to explain the danger of this sort of skew in a portfolio. It notes that Canadian companies play a small role in the MSCI World Index, that the S&P/TSX Composite Index is heavily weighted to resources and financials, and, it says that Canadian equities are unlikely to consisently outperform foreign equities.
The firm says that investors can avoid the disadvantages created by this sort of bias by implementing a global equity structure, and it makes the case for global equities.
“The diversification benefits gained by adding global equities to a Canadian-only portfolio will dampen the portfolio’s risk exposures and produce more stable returns in the long run, independent of the performance of the Canadian market,” it says.
And, it notes that such a portfolio doesn’t have to be disruptive. “It is not necessary to replace all Canadian and non-Canadian equity managers within a portfolio because a number of money managers have begun to expand their offerings to include global equities. In some cases, expanding investment guidelines might be a simple solution,” said Nino Boezio, vice president, portfolio strategy and investment consultant. “In other situations, it might make sense to maintain Canadian and non-Canadian managers and look to add global mandates selectively as opportunities arise.”