The BlackRock 2015 Global Investor Pulse Survey takes a big look at the retirement priorities of Canadians – but the issue of home bias continues to fly under the radar, putting clients at risk and advisors on the defensive.
A typical Canadian client invests more than three-quarters of their portfolio in domestic holdings including stocks, bonds and mutual funds. Just 24% invest any amount outside Canada; that includes our neighbour to the south whose equity markets represent slightly less than 50% of the global market cap.
When you consider that some experts are predicting global economic growth of 4% in 2016 compared to 1% in Canada, advisors might want to reconsider this home bias which can only act as a headwind to the growth of client assets.
“Canadians continue to invest the large majority of their portfolios domestically despite growing concerns about the state of the country’s economy and its potential impact on their investments,” said the report. “The reason why? General preference to keep their money in Canada (49%), and feeling more comfortable domestically (36%).”
However, when you consider that residential real estate represents 39% of the total assets in Canada, the typical client is likely better off investing their remaining assets in a diversified portfolio of foreign equities.
Not doing so actually puts clients at risk.
“It might feel safe, but the strong home bias of Canadians may be adding risk to their portfolios, not reducing it, given the current state of the economy,” said the report. “It’s important for investors to realize that there are many opportunities for them to invest in stronger markets, which can provide benefits that may not be available in their home market.”
Interestingly, the report found two things holding back Canadians: First, many feel they don’t have enough education or information to make a decision; and secondly, one-fifth have never even considered investing outside of the country.
This speaks to the role advisors can play in reducing the risk of a client’s portfolio by thinking outside Canada.
“I think it’s critical that advisors educate their clients on the short comings of the Canadian equity market in particular. That they help them understand that it is a highly concentrated market dominated by 3 sectors – materials, energy and financials which total about 70% of the TSX,” Bellwether Investment Management CEO Bob Sewell told WP recently. “They need to at least look at their investing through a North American lens if not a global lens to gain broad exposure to all sectors of the global economy.”