Investment markets beyond North America are abound with opportunities for investors. And diversifying geographically and across various markets can have important risk management and return benefits. Here are five reasons why investors should consider adding international opportunities to their portfolios.

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Grab your portfolio passport!

Canadians love to travel, and late-spring, summer and early fall are the times we tend to spread our wings and head out to explore the world. According to Statistics Canada data, in 2023 Canadians took over 36 million trips abroad. While the majority of those were to the U.S., we also loved travelling to Mexico, France, and the United Kingdom, which drew between them almost 3 million Canadians, or around a third of the almost 9 million trips we collectively took outside of the U.S. and Canada. Of note, we spent also approximately $15.4 billion dollars in those non-North American destinations in 2023.¹

But the opposite appears to be the case when it comes to our investments. Canadians tend to stick very close to home when it comes to their portfolios. According to a recent study,² investors on average allocate ~55% of their equity portfolios to Canadian stocks, meaning that with only around 3% of global market capitalization, Canadians are more than 18x over-allocated to their home market. And while North American investments offer wonderful opportunities and diversification benefits, expanding one’s scope beyond our shores can also generate important benefits.

“Only in Canada, you say? Pity!”

As a Canadian investor, you might wonder if your portfolio reflects the true scope of global opportunity. While domestic stocks provide familiarity, and U.S. markets offer growth, limiting investments to North America means accessing a limited fraction of the world's economic potential, and missing out on a number of great “destinations” for your investment dollars.

Of note, Canada represents only 2.7%-3.2% of global equity markets, while both Canada and the U.S. combined account for approximately 50% of global market capitalization.³ This means that around 50% of investment opportunities exist beyond our continental borders—in dynamic European economies, rapidly expanding Asian markets, and emerging regions worldwide.

Looking Beyond North America: Five compelling reasons to seek out global opportunities

1. Geographical portfolio diversification

Canada's market suffers from significant concentration risk—our S&P/TSX Composite Index is heavily weighted toward financials and natural resources, with these sectors representing nearly half the Index. This can create vulnerability during commodity downturns or banking sector stress.

International markets offer exposure to sectors underrepresented in Canada, including:

• Industrial and technology innovation: German manufacturing and precision engineering, European planes and jets, Dutch semiconductors
• Healthcare advancement: Swiss pharmaceuticals and European medical technology
• Consumer goods leadership: French luxury brands, Italian fashion, China e-tailers, and Korean and Japanese electronics
• Renewable energy: Danish wind power, Chinese EVs, and Spanish solar technology

By investing across these diverse economies, you create protection through genuine sector diversification rather than simply replicating Canada's economic vulnerabilities in different geographies.

2. Higher growth potential in Emerging Markets economies

While developed markets offer stability, Emerging Markets (EM) economies present compelling growth opportunities that significantly outpace North American expansion rates:

• India's economy is projected to grow at 6-7% annually through 2030, compared to 1-2% in Canada⁴
• Southeast Asian nations like Vietnam and Indonesia are experiencing rapid urbanization and middle-class expansion⁴
• Latin American countries are developing stronger manufacturing bases and technology sectors

According to economic forecasts, emerging markets may account for 60% of global growth by 2030, compared to just 40% from developed economies.⁵ For Canadians seeking growth beyond our mature domestic market, these regions offer exposure to economic expansion often unavailable at home.

3. Risk management through currency diversification

The Canadian dollar's value fluctuates significantly based on commodity prices, particularly oil. When our dollar strengthens, international investments convert back at lower values; when it weakens, those same investments gain additional value when converted to Canadian dollars.

This natural currency hedge proves especially valuable during economic uncertainty:

• During the 2014-2016 oil price collapse, the Canadian dollar fell approximately 25% against major currencies³
• Canadians with international investments saw their holdings gain 15-20% in value purely from currency effects³
• Even modest international allocations (10-15% of portfolios) can provide meaningful protection against domestic economic shocks⁴

Currency diversification serves as an important risk management tool that is unique to international investors.

4. Counter-Cyclical Economic Exposure

Different economies operate on varied economic cycles, creating valuable counter-cyclical investment opportunities:

• When North American markets struggle with high interest rates, Asian economies might be expanding monetary policy
• During commodity downturns that hurt Canadian stocks, European consumer-focused companies might thrive
• Regional economic policies often diverge, creating beneficial exposures for globally diversified investors

This non-correlation between markets can reduce overall portfolio volatility. Research shows that combining Canadian stocks with international equities has historically lowered portfolio volatility from 14.8% to 12.7% compared to Canadian-only holdings—improving risk-adjusted returns.⁶

5. Access to global innovation leaders

Many of the world's most innovative companies operate outside North America:

• Technology: Taiwan's TSMC produces advanced semiconductors powering global technology
• Renewable energy: Denmark's Vestas leads in wind turbine innovation
• Automation: Japan's Fanuc pioneers industrial robotics
• Electric vehicles: European automakers like Volkswagen are committing billions to electric mobility

These sector leaders represent growth opportunities unavailable in Canada's resource- and banking-heavy market. Their innovation creates structural advantages that generate shareholder value regardless of commodity price fluctuations.

How to implement international diversification

For Canadian investors seeking international exposure, several approaches work well:

1. International funds: These vehicles provide diversification benefits while also offering broad developed market exposure
2. Region-specific funds: For targeted allocation to specific regions.
3. Global dividend funds: For income-focused investors, options like international dividend funds provide exposure to established international companies with strong dividend histories
4. Stocks: Most major companies’ stocks can be purchased directly through global exchanges, or through North American depository receipts (e.g., ADRs) that trade on local exchanges.
5. Currency-hedged options: For investors concerned about currency fluctuations, hedged versions of international funds offer protection against currency movements

Well-travelled, well-invested: the global investor advantage

The case for international diversification extends beyond simply chasing returns—it is about building a more resilient portfolio. By accessing growth opportunities, protecting against domestic economic shocks, and tapping into innovation worldwide, Canadian investors gain structural advantages unavailable through North American investments alone.

While home bias—the tendency to overweigh domestic investments—remains strong among Canadian investors, those who overcome this limitation often build more robust portfolios capable of weathering various economic scenarios. The most successful investors recognize that in an interconnected global economy, investment opportunities do not stop at national borders. The world beyond North America offers compelling opportunities that can enhance returns, reduce volatility, and help you achieve your long-term goals. Happy travels!

Speak to your RBC Dominion Securities advisor to learn more about international diversification and to discuss what allocation is appropriate for you based on your wealth plan and risk profile.

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Sources

1. Travel and tourism statistics. Statistics Canada (December 31, 2023).
2. Canadians reducing home bias, eh?. Vanguard Investment Inc. Canada (July 2023).
3. International diversification: Does it belong in your investment portfolio?. ASC CheckFirst (October 10, 2024).
4. Why invest internationally?. The Vanguard Group Inc. (2025).   
5. Global vs. Domestic Investing. Raintree Wealth Management Inc. (November 12, 2024).
6. Go global: Why invest abroad?. RBC Global Asset Management Inc. (May, 2016).

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