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Canadian home country investment bias

June 1, 2014 by  
Filed under Investing

Home country bias is the tendency for investors to place a high proportion of their investments in domestically-based companies simply because they are closer to home and more familiar, without regard for the many high quality investable companies that exist elsewhere.  For Canadians this is a particularly strong tendency and an important one, because our stock market represents only about 4% of the world stock market.

For many years our RRSPs and pension plans had very restrictive foreign content rules, which reached 30% and then were discarded altogether.  Curiously, it appears that Canadian investors still have about 30% invested abroad, even though there are no longer any restrictions.

Home country bias


Consider this question. If you hired a money manager to invest your assets for long term growth and security, would you tell the manager to ignore 96% of the investment market and focus only on the 4%?  Not likely. You would likely tell the manager to search the whole world to identify the best companies, the best investment opportunities that exist, and to diversify among a number of industries to protect your capital from the occasional pressures that affect a given industry.

In my practice, clients normally have their investments highly globalized to take advantage of the best investment opportunities the world has to offer. It appears from the table above that our youth may be further along the path to global investing than those of us who grew accustomed to being restricted by arbitrary foreign content rules, and who may not have changed asset allocations for a long time.









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