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Canada
Why Diversify?
Because winners rotate. A look back at the last five years shows how hard it is to consistently pick the best performing asset class.
Annual Returns of Key Asset Classes (CDN$)
| 2015 | 2016 | 2017 | 2018 | 2019 | |
|---|---|---|---|---|---|
| Best Return | U.S. Equities 21.6% |
Canadian Equities 21.1% |
Emerging Markets Equities 28.7% |
U.S. Bonds 9.0% |
U.S. Equities 24.8% |
| Worst Return | Canadian Equities -8.3% |
International Equities -2.0% |
U.S. Bonds -3.3% |
Canadian Equities -8.9% |
Global Bonds 1.4% |
Investor Education
Main Topics
The only investors who shouldn't diversify are those who are right 100% of the time." – Sir John Templeton
Five Ways to Diversify Your Portfolio
A diverse portfolio can protect you from downturns and give you access to the best investment opportunities this year – every year.
Diversify by Asset Class
There are three main asset classes:
- Equities (or stocks)
- Fixed income (or bonds)
- Alternatives (including hedge strategies, which seek to lower risk and improve returns).
Adding countries to these basic categories adds nuance – Canadian Equities, for example, or U.S. bonds. But even at their simplest, no single asset class consistently rises to the top.
Explore the “Why Diversify Investor Flyer” to see 15 years of rotating winners. And talk to your advisor about building a portfolio that lets you take part in each year’s best ideas.
Diversify by Sector
“Sector” is another way of saying “industry.” In Canada, that often means financial, energy and material stocks. But if you’re only investing in those three – or if you’re only investing in Canada, for that matter – you might be missing out.
Industries fall in and out of favour. By investing in many sectors, you have a better chance of benefiting from industries that are on the rise.
Canadian Sectors – Annual Performance Rankings
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Sources: Bloomberg, Standard and Poor's, as of December 31, 2019. TSX Composite GICS Sectors. |
|||||||||||
| Consumer Discretionary | 4 | 9 | 3 | 2 | 4 | 5 | 7 | 2 | 10 | 8 | |
| Consumer Staples | 10 | 3 | 2 | 6 | 1 | 2 | 9 | 9 | 3 | 9 | |
| Energy | 8 | 8 | 9 | 7 | 11 | 11 | 2 | 11 | 11 | 6 | |
| Financials | 9 | 7 | 5 | 5 | 9 | 6 | 3 | 6 | 8 | 7 | |
| Health Care | 1 | 1 | 1 | 1 | 3 | 9 | 11 | 1 | 9 | 11 | |
| Industrials | 7 | 6 | 6 | 3 | 6 | 8 | 4 | 3 | 5 | 3 | |
| Information Technology | 11 | 11 | 10 | 4 | 2 | 1 | 10 | 4 | 1 | 1 | |
| Materials | 2 | 10 | 11 | 11 | 10 | 10 | 1 | 10 | 7 | 4 | |
| Telecom Services | 5 | 2 | 7 | 8 | 8 | 4 | 6 | 5 | 4 | 10 | |
| Utilities | 6 | 4 | 8 | 10 | 7 | 7 | 5 | 8 | 6 | 2 | |
| Real Estate | 3 | 5 | 4 | 9 | 5 | 3 | 8 | 7 | 2 | 5 | |
Diversify by Region
Most investors stay close to home. Look at Canada. Canada makes up less than 3% of the world’s economy. But almost 74% of the average Canadian portfolio consists of Canadian investments.1
Is it time for you to look beyond our borders? Adding investments from other regions can boost your portfolio by exposing it to:
- Economies that are growing faster today
- Economies that are poised for higher growth in the future.
IMF 2017 and 2023 projected GDP growth rates (%)2
Sources:
(1) Bloomberg and Investor Economics as of December 31, 2019.
(2) IMF World Economic Outlook Database, as of October 2019.
Diversify by Market Capitalization
Market capitalization—or market cap—refers to a company’s size. Market cap tells us how much money investors have given a company based on the number and price of that company’s shares. Large cap companies have shares valued at more than $10B. Small cap companies have shares valued at less than $2B.
Companies of different sizes perform differently as markets change. To diversify your portfolio, invest in companies of various sizes – or choose a mutual fund that does that for you.
Annual performance return by market capitalization (CDN$)
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
| Canadian Small Caps 38.53% |
U.S Large Caps 4.96% |
Global Small Caps 16.00% |
U.S Small Caps 48.14% |
U.S Broad 23.93% |
U.S Large Caps 21.85% |
Canadian Small Caps 35.39% |
Global Small Caps 16.15% |
U.S Large Caps 4.77% |
Global Large Caps 25.33% |
| U.S Small Caps 20.24% |
U.S Broad 4.64% |
Global Broad 13.96% |
U.S Broad 41.27% |
U.S Large Caps 23.86% |
U.S Broad 21.59% |
Canadian Large Caps 21.36% |
Global Broad 14.99% |
Global Large Caps 4.31% |
U.S Large Caps 25.18% |
| Global Small Caps 20.10% |
Global Large Caps 3.42% |
U.S Small Caps 13.77% |
U.S Large Caps 40.93% |
Global Broad 15.01% |
Global Large Caps 20.18% |
U.S Small Caps 17.11% |
U.S Large Caps 14.29% |
U.S Broad 4.23% |
U.S Broad 24.84% |
| Canadian Large Caps 13.84% |
U.S Small Caps -1.80% |
U.S Large Caps 13.63% |
Global Small Caps 37.84% |
U.S Small Caps 14.35% |
Global Broad 19.55% |
Global Small Caps 8.22% |
U.S Broad 13.83% |
Global Broad 0.06% |
Canadian Large Caps 21.93% |
| U.S Broad 9.06% |
Global Broad -2.67% |
U.S Broad 13.43% |
Global Broad 35.91% |
Global Large Caps 14.01% |
Global Small Caps 19.18% |
U.S Broad 8.09% |
Global Large Caps 13.39% |
U.S Small Caps -3.00% |
Global Broad 21.91% |
| U.S Large Caps 7.98% |
Global Small Caps -8.75% |
Global Large Caps 11.99% |
Global Large Caps 30.38% |
Canadian Large Caps 12.27% |
U.S Small Caps 14.64% |
U.S Large Caps 7.67% |
Canadian Large Caps 9.78% |
Global Small Caps -6.28% |
Canadian Small Caps 19.20% |
| Global Broad 6.48% |
Canadian Large Caps -9.08% |
Canadian Large Caps 8.07% |
Canadian Large Caps 13.26% |
Global Small Caps 11.41% |
Canadian Large Caps -7.76% |
Global Large Caps 6.64% |
U.S Small Caps 7.12% |
Canadian Large Caps -7.58% |
U.S Small Caps 19.18% |
| Global Large Caps -1.11% |
Canadian Small Caps -14.17% |
Canadian Small Caps 2.46% |
Canadian Small Caps 7.76% |
Canadian Small Caps -0.09% |
Canadian Small Caps -13.75% |
Global Broad 4.41% |
Canadian Small Caps 6.38% |
Canadian Small Caps -18.17% |
Global Small Caps 18.90% |
Source: Morningstar Research, as of December 31, 2019
Diversify by Investment Style
When it comes to stock-picking, there are two main styles – Value and Growth – as well as a hybrid style (GARP) that combines elements of the other two.
Value investors look for companies that appear to be selling at a bargain. Growth investors look for companies that simply live up to the name. GARP investors land somewhere in the middle, seeking to invest in companies that offer Growth at a Reasonable Price.
No one style is the consistent winner. A diverse portfolio might include all three.
MSCI World Growth vs. MSCI World Value
One-Year Return Differential
1975 - 2019
Remember to Rebalance
Markets change. A portfolio that’s diversified today might not be as diversified two or three years from now. Use Franklin Templeton’s Automatic Rebalancing Service to stay on track. And talk to your advisor to make sure your portfolio can take you where you want to go.
