Leaving home

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  By Guest Blogger Doug Rowat

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It began on March 11th, 2011, off the northeastern coast of Japan with an earthquake so massive that it could be felt all the way in Russia. However, it wasn’t the earthquake that caused the destruction: it was the multiple tsunamis that the earthquake produced, some as high as 30 feet.

The tsunamis hit the Japanese coast with devastating effect and when all was said and done more than 19,000 people were dead, US$360 billion in economic damage was done and the Japanese nuclear industry, critical to the country’s energy infrastructure, lay in tatters. Japanese equities weren’t spared either, as the Nikkei 225 declined more than 17% that year, massively underperforming global equities overall.

Flash forward to present-day France. The problems facing this country amount to a figurative tsunami, but one that could prove equally devastating if the country remains on its present path. Rioting and unrest has swept the country, resulting in hundreds of businesses being looted, irreplaceable historic buildings being burned to the ground and thousands arrested.

While ostensibly the protests began due to the brutal conditions within French schools (think rats and cockroaches), the real problem actually lies with France’s massive debt, which currently stands at a record-high EUR3.6 trillion (C$5.7 trillion). Investors have been uncomfortable with both the social unrest and the rising debt and, as with Japan in 2011, France’s equity market hasn’t been spared from the aftershocks. The CAC 40, France’s benchmark equity index, is down 1% y-t-d, which may not seem meaningful, but it certainly is in a year where many other global benchmarks are up double-digits. The S&P 500, as a point of comparison, is up more than 14% y-t-d.

The connection between Japan and France doesn’t relate to the exact nature of their two economic disasters, obviously they’re different, rather it’s the lesson that both countries can teach us about the dangers of home-country bias. According to the IMF, Japanese investors are almost 64% exposed to domestic equities. French investors have even higher exposure.

But Canadians aren’t immune to this bias either. We have almost 56% exposure to domestic equities. More shockingly, RBC Global Asset Management reports that Canadians have 92% (yes, 92%) of their total wealth, which includes savings, investments, real estate and so on, tied to Canada. In short, Canadians are very poorly diversified.

I’ve frequently reported here that individual stock positions blow up all the time. According to JP Morgan, 44% of all stocks will experience a catastrophic loss (a decline of 70% or more with little recovery) at some point in their lifetimes. However, it can’t be forgotten that individual countries blow up (or at least massively underperform) all the time as well. When it comes to controlling portfolio downside risk, much attention is given to asset-class diversification, but geographic diversification is equally important.

And geographic diversification’s also useful for the upside capture. The S&P/TSX Composite’s done great this year, but it’s had a big assist from the Iran war. This can’t be counted on every year. The below table highlights all the major global equity benchmarks that have outperformed Canada over the past decade:

The S&P/TSX Composite’s a great long term performer, but many global markets have done much better

Source: FactSet, Turner Investments

Think of this if you’re staring at your portfolio’s 56% Canadian-equity weighting. What upside might you be sacrificing just to stick with what’s familiar?

Canada’s a special place to invest. But it’s not the only place.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd

Source: https://www.greaterfool.ca/2026/10/24/leaving-home/