Kicking the ‘Home Country Bias’ Habit

June 1, 2019

 
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Kicking the ‘Home Country Bias’ Habit

Everybody likes familiar things. We all have a favourite neighbourhood restaurant or watering hole. We gain a sense of comfort when we see a face we know in a crowd of strangers. This is simply the nature of who we are. It seems human nature has also driven the average Canadian investors to gravitate to the familiar when it comes to their portfolios.

Canadian stocks in aggregate make up 3.4%* of the MSCI World Index, meaning Canadian stocks form 3.4% of the market value of all stocks across the globe. Contrast that with the fact that, according to Vanguard Investments, Canadian stocks makes up nearly 60% of the equity component of the typical Canadian portfolio! In other words, a big portion of the Canadian investing public has little to no exposure to stocks outside of Canada.

This phenomenon is known as “home country bias”.  This begs the question – should Canadian investors look to increase the amount of foreign exposure in their portfolios?

As a guide, we look towards the Canadian Pension Plan to learn of their opinion. Based on the 2018 CPP Annual Report, their stock allocation moved from 64% Canadian in 2006 to only 15% Canadian in 2018. Clearly, they believe diversification outside of Canada can play an important role in reducing risk and volatility without sacrificing returns.

Even so, it’s clear that Canadian investors have been taking risks they could have diversified away. We challenge you to look at your exposure and explore the benefits of global diversification.


 

Warm Regards,

Joe Basque, BA, CFP® | Financial Planner & Investment Advisor
HollisWealth®, a division of Industrial Alliance Securities Inc.
j.basquewestmountwealth.com

*Source: MSCI World Index (CAD) as of April 30, 2019

This information has been prepared by Joe Basque who is an Investment Advisor for HollisWealth®. Opinions expressed in this article are those of the Investment Advisor only and do not necessarily reflect those of HollisWealth.  HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.