New suite of portfolios an answer to Canadian home bias, with active management and global fixed income key elements
Canadian investors have, on average, an eye-opening 90% of their wealth tied to the country, according to RBC Global Asset Management.
It’s an age-old issue that is not confined to The Great White North but Doug Coulter, president, told WP that many clients aware of this bias had started to request solutions to gain greater diversity.
While the firm have in general being "going global" for the past decade, its latest offering hones this approach further. This week, it announced the launch of RBC Global Portfolios, which it billed as an efficient and cost-effective way to diversify beyond Canada in a single portfolio.
To accommodate the risk and return profiles of investors, the suite offers five different portfolios made up of varying asset class weightings of cash, global bonds, Canadian equity, US equity, international equity and emerging markets equityThe portfolios are titled Very Conservative, Conservative, Balanced, Growth and All-Equity.
Series A management fees range from 1.45% (Very Conservative) to 1.70% (All-Equity). For full portfolio make-ups, click here.
Coulter said the huge 90% Canadian exposure is a natural result of an investor often having real estate, a pension, insurance and GICs in the country.
He said: “A subset of our clients are saying, ‘can you help us with that by managing portfolios that would have less home bias’.
“It’s a natural thing to happen but the other thing is that the options have not always been great to have foreign exposure and there is a comfort level for people that just understand Canada. For them, owning Canadian stocks and bonds is natural and they haven’t really thought about it much differently.”
He pointed to statistics from the UK, which is about 6% of the global economy but has about 26% of people invested in UK stocks, while Australia has about 2% and almost 65%. Interestingly, across all of RBC GAM’s five global portfolios, Canadian equities do not exceed 1.4% as it leverages the expertise of its investment teams, including mutual funds managed by itself, Phillips, Hager & North Investment Management, BlueBay Asset Management and RBC iShares ETFs.
This depth of talent is also being utilised in the fixed income part of the portfolio and this is an area where Coulter believes RBC GAM has a real edge over its rivals.
He said: “The real big difference is if we take a balanced portfolio of 60-40, we are going to have 39% of that 40% in global fixed income, and if you compare that to most of our competitors, they struggle to have that much global fixed income portfolio because they don’t have the capabilities.
“Over the last 10 years our acquisition of BlueBay, asset management in Hong Kong and lift-outs have given us this opportunity to globalise the fixed income part of the portfolio.”
Coulter is also bullish about his team’s ability to provide alpha, telling WP that with the exception of the S&P 500, they outperform passive indexes.
He added: “We are able to outperform the equivalent, whether that’s emerging markets or global equities or global fixed income. The one that is always challenging is the S&P 500 because there is so much coverage from an analysts’ perspective. There is so much coverage out there that it’s hard to know something that somebody else doesn’t, but when you get into smaller, global companies it becomes a lot easier and we outperform significantly in most global situations.
“You take the emerging markets, when you own the passive index it comes with the Venezualas, the Russias, and with a lot of problem countries because that’s the index and you have to own it. When you are in an active strategy you can say, 'geez, we are a little uncomfortable right now with Russia, Venezuela, whoever, and therefore we are not going to own it or we are going to significantly underweight it'. That’s where the active picks up a lot of performance.”