Canadians should start thinking outside the box to boost their investment returns
I was recently in New York with my son, and we visited Ellis Island. This terrific museum tells the immigration story of the 12 million people who came to the United States through Ellis Island between 1892 and 1954. One of the most interesting parts of the museum was how Americans viewed these immigrants. The message was very consistent. They were not wanted. They would bring crime and disease. They would kill the economy. The only thing that changed over those 62 years was which country and its people were being maligned and targeted. The message boiled down to a fear of the different.
How is this relevant to a personal finance column? It is because I see this same fear of the different hurting investment returns. Specifically, those who invest only in stocks, bonds and cash, are missing out on better risk-adjusted portfolios. They are missing out on new asset classes of private debt and ‘uncommon’ securities because they are different.
Another fear of the different can be seen in our heavy bias to Canadian stocks, when the TSX has underperformed the rest of the world for the past decade, and we are just three per cent of the global market capitalization. As a simple example, how many Canadians own a stock called Generac Holdings? There are dozens like it, but this is a company that has gone up 80 per cent over the past three years, and is up 13.5 per cent over the past year. How many Canadians have ever heard of the company?
Generac is a Wisconsin-based designer and manufacturer of power generators. It isn’t a small company. It has a value of $3.5 billion. As a point of comparison, here are some Canadian names that you might own and have certainly heard of. These companies all have a market capitalization much smaller than Generac — Crescent Point Energy, Westjet, Cineplex, Aecon Group. By the way, none of these more ‘common’ names have performed anywhere close to as well as Generac.
We see many prospective clients where 100 per cent of their stock investments are Canadian. To see how one of the top Canadian investors builds a portfolio, take a look at the Ontario Teachers’ Pension Plan. This top ranked Pension Plan has some differences in their investment mandate to you or me, but fundamentally the plan is invested for the purpose of funding a large group of Canadian retirees. Only a small fraction of their assets are directly invested in Canadian publicly traded stocks.