TD Asset Management (TDAM) recently published their weekly Market Perspectives piece on the merits of Global Diversification of the Equity Portfolio. Looking back over the last 30 years the Canadian Equity Market (TSX) has experienced higher volatility and lower performance returns than the Global (World) index. In the 2008 bear market the TSX experienced a larger drop than the Global (World) index. The TSX is also more highly concentrated in a few Industry Sectors (Financial Services and Resources) than the Global Index. With the Canadian Equity market comprising only 4% of the Global Index, TDAM’s analysis and recommendation is that Canadian investors should have a higher Foreign Equity weighting than Canadian Equity weighting within the Equity portion of their Portfolio. Their analysis suggests that the optimal ratio of Canadian Equity to Foreign Equity is 37%/63%. This ratio is very close to the 40%/60% Canadian Equity to Foreign Equity ratio we adopted approximately 4 years ago.
For more information, check the out report here: Global Diversification Article