Why Diversify?

Markets can be volatile and top-performing asset classes difficult to predict. Looking at the best and worst performing asset classes from the last five years illustrates just how hard it is to pick winners consistently and successfully.

Rotation Situation – Annual Returns of Key Asset Classes (CDN$)

 20132014201520162017
Best Return U.S. Small Caps
+48.14%
U.S. Large Caps
+23.93%
U.S. Large Caps
+21.59%
Canadian Small Caps
+35.39%
BRIC Equities
+32.71%
Worst Return Canadian Bonds
-1.19%
Canadian Small Caps
-0.09%
Canadian Small Caps
-13.75%
European Equities
-3.24%
U.S. Bonds
-3.26%

"The only investors who shouldn't diversify are those who are right 100% of the time." – Sir John Templeton

Five Ways to Protect and Grow Your Assets

Diversification allows you to participate in the growth of investments that are doing well, limit downside risk and smooth out the highs and lows associated with individual investments. Here at Franklin Templeton, we suggest five ways to effectively diversify your portfolio:

A portfolio invested across various asset classes lets you both participate in the gains of each year's top performing categories and minimize the impact of the worst performers. While chasing after past winners can be tempting, Morningstar research shows no single asset class has consistently been among the top performers for the past 20 years.

Top-performing sectors rotate in and out of favour. When your portfolio is diversified across multiple sectors, you don't have to try to predict which sectors will come out on top each year.

Annual Performance Ranking By Sector

2008200920102011201220132014201520162017

Sources: Bloomberg, Standard and Poor's, as of December 31,2017. TSX Composite GICS Sectors.

Consumer Discretionary 8 8 3 8 3 2 4 4 7 2
Consumer Staples 1 9 8 3 2 5 1 2 8 7
Energy 7 3 7 7 9 7 10 10 2 10
Financials 9 2 9 6 4 6 8 5 4 6
Health Care 6 5 1 1 1 1 3 8 10 1
Industrials 3 6 5 4 5 4 5 7 3 3
Information Technology 10 1 10 10 8 3 2 1 9 4
Materials 4 4 2 9 10 10 9 9 1 8
Telecom Services 5 10 4 2 6 8 7 3 6 5
Utilities 2 7 6 5 7 9 6 6 5 9

Adding investments from other regions to your portfolio of Canadian securities can provide access to faster-growing economies and those poised for higher future growth.

Table showing projected 2014 and 2019 GDP Growth Rates

Companies of different sizes perform differently at various points in the business cycle. Representation across a range of market capitalizations helps a diversified portfolio to perform in all market and business cycles.

Table showing annual performance by market capitalization (CDN$)

At different points in the economic cycle, growth and value investment styles perform differently. Investing across multiple styles eliminates the guessing game of which style will be the winner.

Table showing MSCI World Growth vs. MSCI World Value Differential