regional investment diversification

In today’s world of investing it may seem strange to keep emphasizing the need to have a global outlook, but as Kevin Greenard writes in the Times Colonist, there’s a reason why Canadians have often stayed at home when it comes to investing, and breaking out of that mould can take some time, and education.

Specifically, before 2005, Canadians were restricted to having no more than 30 percent of their registered accounts in foreign holdings. After 2005, all restrictions were dropped and Canadians were allowed to have 100 percent of such holdings in foreign countries. Yet, sometimes old habits are hard to break, but they are worth it, and Greenard uses the Canada Pension Plan (CPP) as an example.

If the Canadian government does it….

In 1999, 100 percent of the CPP’s assets were in Canada. In 2006, it was only 64 percent, and, in 2018, that number has gone all the way down to 15.1 percent. The greatest source of foreign investment for the CPP was in the United States, followed by Asia and Europe.

So, what should this tell you? It should tell you that, if one of the country’s most important portfolios, which invests for the benefit of Canadian pensioners, believes it’s necessary to invest outside of Canada in order to seek satisfactory returns, then maybe the rest of us should start thinking the same.

There are so many reasons why investors should think globally when seeking opportunities. For one, and it’s something we’ve stressed on these pages for some time, investing in different places is a form of diversification. For example, global factors impact emerging markets differently than they do developed markets, so investing in each helps to diversify and protect a portfolio, doesn’t it.

Diversification and more

Greenard provides other reasons why investing globally, especially for Canadians, is a good idea. For one thing, the list of good investment opportunities, such as good companies, is limited in Canada. Why not expand that list by looking elsewhere? Also, while Canada may be strong in certain sectors, such as resources, it may not be very strong in others. Seek those other sectors in other places.

Indeed, the list of reasons to expand your portfolio globally is far too long to list here, but sometimes it’s just a matter of breaking old habits and going beyond the familiar in order to achieve the kinds of returns that meet your investment objectives.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

The term diversification is used often in investing. Most people with any experience in investing know that, to protect one’s investments from undue risk, it’s always wise to spread your money around, so to speak, so that failure in one type of investment doesn’t affect all the others. Pretty simple, right?

However, although the principle of diversification is often used with respect to investment class or type — such as bonds, stocks, alternative assets, etc. — a type of diversification that can sometimes get overlooked is that of location. In other words, investors sometimes get caught in the trap of keeping their money in one familiar location, instead of trying to spread it around globally. And the risks of doing so are considerable.

Not all markets are the same

Think about it. Although globalization has certainly come with the reality that what happens in one market location will affect another market location, no two global locations are alike and, as a result, not all markets are subject to the same kinds of risks. Hence, the need for diversification.

Let’s take an example. In fact, let’s take a look at what’s happened here in our own backyard. Although the economies of Canada and the United States are integrated in so many ways, they haven’t always followed the same path, and a failure to notice can result in lost opportunities.

Perhaps no sector has exhibited this kind of cross-border difference than housing. Back in 2008 and 2009, both sides of the border were most definitely negatively impacted by the global recession brought on by the housing crisis. However, while Canada’s housing and construction sectors bounced back quite quickly to pre-recession levels, and have continued to boom to unprecedented levels until even today, the story south of the border has been dramatically different. Only recently has America’s housing sector showed serious signs of life. In the meantime, the sector was struggling mightily just to keep its head out of water.

Taking advantage of opportunities

Now, there was no shortage of players in the sector that didn’t recognize the gap and, most importantly, fail to take advantage of it. One reason might be because, well, sometimes Canada can be easy to overlook, even when it’s outperforming its southern neighbour in an important economic sector. However, for forward-looking and discerning investors, the difference would have been recognized and taken advantage of — if, for no other reason than to diversify one’s investments in any asset class.

And such global or location diversification can work the other way around, too. Moving forward, the American housing sector could advance in ways that Canada’s can’t. That’s why such diversification is so important. It not only diversifies the risk, but maximizes regional opportunities, too.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

If the Canadian government does it….

Diversification and more

Not all markets are the same

Taking advantage of opportunities

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