Clark Wealth Management Group - ScotiaMcLeod Fredericton

All investing carries some risk. Some risks can be managed - but not eliminated entirely. One of the things about human nature is that when we are familiar with something we often become less sensitive to the risks. For example, people who have shares in the company they work for quite commonly believe that there is lower risk in that investment than an outside investor would ascribe.

Canadians, because of our familiarity with our home market, perceive less risk investing in Canada than investing abroad. The facts show quite a different story. Investing in Canada alone can be a risky proposition. Investors who do it are betting that Canadian companies will do better going forward than other companies in the world. That hasn’t even been universally true for the past decade when the Canadian market did relatively well.

Did you know that of the fifty best performing stocks in the world over the past ten years only two of them were Canadian companies? Fidelity investments looked at the top five performing stocks in all ten of the MSCI investment sectors and the only Canadian companies they found on the list were Potash Corp of Saskatchewan (number two in Materials) and Rogers Communications (number three in Telecom).

Did you know that the Canadian S&P/TSX Composite index now so lacks sectoral diversity that roughly eighty percent of the index is made up of only three (of the ten) sectors? Companies in the Financial, Energy & Materials sector dominate our market in a significant way. This means that our index it is not a good representation of the broader sectors that make up a complete economy.

Did you know that the three year volatility (standard deviation) of the Canadian market now rivals the volatility of the MSCI AC Far East Index (excluding Japan) at 21.2% versus 22.9%?

Did you know that in Canada there are 3 cities with a population of more than one million people? If we include the USA we can add another seven cities. If we add Mexico to include all of North America we get to twenty two cities with more than one million people. In China alone there are more than one hundred and sixty large modern cities with populations higher than one million. Opportunities abound outside of our home market.

The global investing experience for Canadian investors has been poor in the past decade because global market returns have been poor. Canadians have had to endure the additional pain associated with a strengthening currency against a weaker US dollar – and painful it has been.

If we consider where our currency is today however we are in a very different place. We now have a strong C$ to go shopping in other parts of the world, for very high quality global securities which are undervalued when compared to many Canadian stocks.

I’m not suggesting that we abandon our home markets. I am however suggesting that if you are interested in managing the risk exposures you have as you invest, it makes a great deal of sense to look well beyond our borders for opportunities. Not only will your investments be more effectively diversified (don’t have all your eggs in one basket) but they will also allow you to participate in the faster growth rates happening in other parts of the world – while likely subjecting you to less volatility.

As always, talk with your own financial advisor to ensure your money is invested appropriately for your circumstances, means and tolerance for risk.

Keir Clark, is an Associate Director, Wealth Management and senior wealth advisor, with Clark Wealth Management Group and branch manager at ScotiaMcLeod in Fredericton, NB. He can be reached online at www.keirclark.ca or by telephone at 506-450-6465.

Information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, expressed or implied, is made as to the accuracy or completeness.