The saddest phrase in investing today is "Canadian content."
With global demand for commodities slumping, our resource-dependent stock market fell 2.9 per cent in the 12 months to July 31. That compares to a gain of 11.5 per cent for the S&P 500 and 16.6 per cent for the MSCI Europe Australasia Far East (EAFE) Index. With oil prices sinking and metal prices stagnant, the immediate outlook for the Canadian market looks weak. As a Canadian investor, you need at least some domestic content in your stock holdings. But how much?
For some guidance, let's consult a half dozen balanced mutual funds that have a track record of consistently competitive returns against benchmark stock and bond indexes:
- Beutel Goodman Balanced: Canadian stocks accounted for just over 32 per cent of the portfolio as of the most recent update, U.S. stocks were at 16 per cent and international stocks at 19 per cent.
- Fidelity Canadian Balanced: Canadian stocks accounted for about 33 per cent of the portfolio at June 30, compared to 17 per cent for foreign stocks (mainly U.S. companies).
- Leith Wheeler Balanced: Canadian stocks were at 29.3 per cent of the portfolio at June 30, with international stocks at 14.5 per cent and U.S. stocks at 16.6 per cent.
- MD Balanced: Canada at 45.8 per cent, the U.S. at 10.6 per cent and international at 10.1 per cent.
- Mawer Balanced: Canadian stocks at 16 per cent as of June 30, compared to 21 per cent for U.S. stocks and 17 per cent for international.
- PH&N Balanced: Canadian stocks at 30.5 per cent of the portfolio, and both U.S. and international stocks at 15.7 per cent.
- Steadyhand Founders: Canada accounted for 44 per cent of equity holdings at June 30, U.S. at 16 per cent and international at 40 per cent.
The conclusion to be drawn from these numbers is that successful fund managers retain a strong conviction in the Canadian market. Canadian equities sometimes trail the combined weighting in U.S. and international stocks, but all funds retain a significant portion of domestic content. It's also worth noting how wide the variance in Canadian content is. This suggests that your personal asset allocation is valid as long as it avoids making extreme bets on one region over another.