A new survey by Picton Investments and Pollara Strategic Insights reveals a significant gap in Canadian investors' understanding of portfolio diversification. While 83% of respondents feel confident their investments are well-diversified, only 57% are aware of a critical shift in global equity markets. This shift concentrates market weight in a small number of large companies, particularly in technology and artificial intelligence, which are heavily represented in major indices like the S&P 500.
The report highlights that Canadian investors rely heavily on traditional products like mutual funds (55%) and exchange-traded funds (ETFs) (31%). However, many are unaware of the risks associated with the growing dominance of a few mega-cap stocks in these indices. Diversification is key to mitigating risk and seizing opportunities across different sectors and regions.
Canadian investors face an additional challenge due to 'home-country bias,' where portfolios are disproportionately weighted toward domestic holdings. A 2024 Vanguard report found that Canadian portfolios are 18 times overweight in Canadian securities, despite these securities making up less than 3% of the global market. The Toronto Stock Exchange is heavily skewed toward finance and resource sectors, with the top ten holdings constituting over 38% of the S&P/TSX index.
The survey suggests that while Canadian investors are gradually reducing home bias, down from 67% in 2012, there is still progress to be made. Vanguard recommends a more balanced approach, with 30% Canadian equities and 70% international equities. The report also advises investors to consider foreign equities in U.S. dollars to avoid currency conversion costs and to explore global mutual funds, ETFs, or U.S.-listed stocks for broader diversification.