As a Canadian it is very easy to forget that Canada or North America, for example are not the center of the universe. As much as we would like to think that the world revolves around us, in economic terms Canada is only 2% of the world’s GDP. The US is the largest at 24%. That means that the rest of the world’s 74% carries a lot more economic weight.
What does that mean to you the investor? It means that the typical strategy of investing only in companies in Canada and the US is flawed. It is very easy and common to have a home bias, only investing in local companies. It’s like we have side blinders on. For me, as an advisor, I am often focused on products, services and goods of businesses that I have a personal experience with. Since the NYSE has most of those companies listed on it, I tend to buy those stocks. In Canada, I buy the Canadian banks, utilities, resources companies and such.
I recently traveled abroad and I was reminded that there is a whole other world out there. A lot of the US stocks I own are global reaching and in some respect they should count as international investments. There are some large companies, like Nestle, that are trade on the Swiss exchange and are fairly easy to purchase and non-North American. There are many that are not.
When I review of my portfolios I make sure that I keep in mind that there is the rest of the world to invest in. I have to consider what is the best way to cover that 74%? It doesn’t mean that we want three-quarters of our equity exposure to be non-North American but we should have some.
Here is my thought process:
Doing the research and picking the Canadian and US stocks to buy I know how to do. Foreign countries I do not. I also would not know how to begin. I could use a country or regional specific exchange traded fund (ETF). With that method I would have to know which country or region I think is in a growth phase. Since I can’t always make that decision, I usually invest using an international mutual fund. For those that know me and are my clients, they would know that mutual funds are not my typical investment choice primarily because I’m a bit of a control freak; I like to know what I own for my clients, why they own it and how it fits into their portfolio. Investing using a mutual fund means my “letting” go. It also means that I recognize the fact that I am human. I am only one person. I can’t do it all, I don’t know it all.
I can’t always know which is the best global telecom company to invest in is. I can’t know which new product is gaining in popularity in England. So with that, for my clients I cover the other 74% of the world’s economy by investing in international mutual funds. I don’t just throw a dart and pick one. I used my resources to pick the one that I felt most suited the type of global investment coverage that my clients needed.
So my final words of advice are, “Don’t forget that there is a whole big world out there”!