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Why should you invest globally?

October 31, 2011 by  
Filed under Investing, Investment markets, Investor Behaviour

1. Greater diversification

The Canadian stock market has three dominant sectors that make up 78% of the entire index: energy, materials and financials.  Energy and materials are really all about natural resources. The global stock market is much more balanced, with greater representation in areas such as consumer staples, health care, information technology and comsumer discretionary.


Source: Mackenzie Financial, as of Feb. 28, 2011
Source: Mackenzie Financial, February 2011
2. Access to more leading companies
While Canada has a number of impressive, large companies, only 11 made the Fortune Global 500 list.  Canada’s largest company in terms of revenue (Manulife Financial per 2009 data) would rank 64th among US companies, where the top company is more than 10 times larger than Canada’s #1.  The chart below shows where the top 500 are located.
Location of Fortune Global 500 companies. Source: Mackenzie Financial as of Feb. 2011
3. Leading Canadian pension managers diversify globally
Within the equity portion of their holdings, they recognize the limitations of staying in Canada and have allocatged most of their assets around the world.  Canadians view these plan managers as being safe long term investment managers but few Canadians have asset allocations similar to these plans.  Look at the chart below to see how the Ontario Teachers Pension Plan and Canada Pension Plan have allocated their assets.
Equity allocation of OTPP and CPP as of Feb. 2011. Source: Mackenzie Financial

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