The Argument for Investing Globally

Many investors, when investing, tend to focus on Canada and the USA. The reality is that there are many investing opportunities on the planet. As a wealth management firm we believe that a global investment strategy can not only increase your returns, but achieve this with lower risk.

When we analyze the Canadian stock market (TSX), we determine that approximately 75% of this market is exposed to only 3 sectors of the economy—financials, energy and materials. Because of this, the TSX can be referred to as a narrow stock market recognizing that there are 10 sectors in total in the TSX.

When we analyze global GDP (Gross Domestic Product), which is the value of all goods and services produced around the globe, Canada represents less that 3% of that. Looked at another way, if you are only investing in Canada, you are potentially missing out on 97% of the global investment opportunities.

Another factor to be considered when diversifying globally is that synchronicity in global markets generally does not exist. For example, interest rates could be going up in one part of the world while going down in others. Different parts of the world can be late in the business cycle while other parts are earlier in the business cycle. There are also geopolitical issues to consider that could be very different depending on which part of the world you are considering as an investment. Finally, different parts of the world can produce dramatically different performance results year over year. By way of example I have included the 2017 calendar year returns of developed countries (returns are in local currency). You can see that if you were only invested in Canada your return would have been 6.15%, but had you utilized a global investment strategy your return would have been greater with significantly less risk. Interesting to note that over the last 20 years the US has been the number 1 performing market only once and Canada only twice. Investing globally just makes sense.