Best portfolio managers say reduce your Canadian content

Last week, I had the opportunity (at my own expense) to travel down south and spend a few days meeting with some of the best and brightest investment portfolio managers in the world. I came home with a lot of new information to digest and thought I would summarize the key themes that I heard.

Diversification — I have been writing about this and telling our clients for years now, but the message just doesn’t seem to be reaching most Canadians.

You must reduce your Canadian investment exposure and move more of your portfolio to a global allocation. Multiple portfolio managers (PMs) talked about their intent to avoid Canadian stocks and that “going global” would allow Canadians to enhance returns while reducing risk and volatility.

Earnings – Almost every manager I heard from spoke about the earnings of companies at some point. Stock prices fundamentally follow companies’ earnings and the PMs big enough to have direct access to company executives are in an advantageous position to collect the necessary information to properly estimate future earnings.

I really can’t stress enough the importance of the size and quality of the research available to the analysts and PMs when selecting who to invest your money with.

Housing – I did not hear from a single PM who felt that the Canadian housing market would stay on its current path. While opinions did vary on how far it would come back, everyone agreed that a pullback would happen. Canadians consumers are among the most indebted in the world and a housing correction will likely affect Canadian bank earnings. While hard to say how much the banks will be hurt, there was few that were willing to stay invested in them to find out.

Staying invested – Although we regularly hear about the value of staying invested and not trying to time the markets, one PM showed us a couple of interesting slides that proved this point in a simple way.

Looking at the past 53 years (19632016), he compiled a total of how many times the Canadian markets has dropped more than 10 per cent and found only six years (11 per cent) had done so.

In contrast, during the same period, the Canadian stock market has gone up 10 per cent or more 30 years (56 per cent.

The United States saw eight years (15 per cent) of 10- per cent-or-more drops and 31 years (57 per cent) of 10 per centor-more gains.

This would (or should) lead any levelheaded investor to realize that you really need to stay invested all the time and quit trying to predict the short-term moves.

Market outlook – At the end of the day, this is what everyone wants to know; what will happen next?

While all PMs agreed that we are later in the market cycle, they generally felt there is still some upside left to enjoy.

Most PMs stated that they were still quite positive on the markets and while some were more cautious than others, were almost all positioned for continued upward growth.

Those who spoke more cautiously were primarily focused on the Canadian market. which again had little to be excited about.

While U.S. markets still appear more attractive than Canada, the upside potential outside of North America was the common theme of the week.

While nobody has a crystal ball, a lot can be learned when you gather and compare the best thoughts from a diverse group of the world’s brightest investment professionals.

By tabulating their various views into somewhat of a consensus, we can get a clear picture of at least some parts of the markets and their future.

Having said that, there is no point trying to predict the unpredictable. Instead, we can plan with what we know and what we foresee in the future while simultaneously protecting in case we’re wrong through good diversification and downside protection strategies. And if your own portfolio is still invested in too much Canadian equity, maybe it’s time to review.

Brett Millard is the owner of Speir Wealth Management in Kelowna.