InsightsThe Canadian Home Bias In Investing: Why Going Global Matters

February 25, 2025 • 4 MIN READ Author Avatar

Investing in what you know feels safe. Canadians, like investors worldwide, have a natural tendency to invest heavily in domestic stocks—a phenomenon known as home bias. While this might seem logical, it can lead to a significant lack of diversification and missed opportunities in international markets.

What Is Home Bias?

Home bias is the preference investors have for domestic assets, even when global opportunities may offer better growth, diversification, and risk-adjusted returns. In Canada, this bias is particularly strong due to familiarity with major domestic companies like Royal Bank, Shopify, and Canadian Natural Resources, as well as regulatory and tax incentives that make Canadian investments more accessible.

However, a Canada-heavy portfolio comes with significant limitations:

  • The Canadian stock market represents only about 3% of the global market.
  • The economy is highly concentrated in financials, energy, and materials, limiting exposure to high-growth sectors like technology and healthcare.
  • Canada’s economy is closely tied to commodity cycles, leading to increased volatility.

Why Canadians Need to Look Beyond Their Borders

1. Global Equity Market Size and Opportunity

North America accounts for only about 45% of global market capitalization, meaning over 30,000 publicly traded companies exist outside North America. Yet, many Canadian investors are significantly underexposed to these opportunities.

While the U.S. represents only 26% of global GDP, it accounts for 61.5% of global market capitalization. That’s a major imbalance.

2. Access to High-Growth Sectors and Markets

Investing internationally provides access to industries that aren’t well represented in Canada, such as:

  • Luxury goods (Europe – LVMH, Richemont)
  • Technology & semiconductors (Asia – TSMC, Samsung)
  • Pharmaceuticals & biotech (U.S. & Switzerland – Pfizer, Roche)

Emerging markets also offer exposure to fast-growing middle-class populations, urbanization, and industrialization trends that drive long-term growth.

3. Diversification Benefits

One of the core principles of investing is not putting all your eggs in one basket. Global investing allows Canadians to reduce domestic economic risk and mitigate factors such as:

  • A downturn in Canadian financials or energy stocks
  • Weak domestic economic growth
  • Interest rate and housing market cycles unique to Canada

By holding assets across multiple regions, investors reduce overall portfolio volatility while potentially enhancing long-term returns.

4. Attractive Valuations and Currency Advantages

International stocks often trade at lower price-to-earnings (P/E) ratios than North American counterparts. Additionally, currency fluctuations can provide tailwinds for Canadian investors when investing in undervalued global markets.

Many European markets have strong dividend-paying stocks, making them attractive for income-focused investors.

5. Sector Diversification

Canada’s stock market is disproportionately concentrated in financials and energy, while the global market offers a broader mix of industries. For example, technology and healthcare play a much larger role internationally than they do in Canada.

The Role of Active Management in Global Investing

International markets are often less efficient than North American ones, meaning that high-quality active managers can uncover opportunities overlooked by passive index strategies.

For instance:

  • U.S. stocks receive significant analyst coverage, making it harder to find hidden value.
  • International stocks often have fewer analysts covering them, creating opportunities for mispricing and better long-term returns.

The Bottom Line: Think Global, Invest Wisely

For Canadians, overcoming home bias is crucial for building a more resilient, growth-oriented portfolio. While domestic investments will always play a role, a well-diversified global approach provides access to broader industries, stronger growth potential, and reduced economic risk.

If you’re looking to break free from home bias, consider strategies that provide access to global markets—whether through international ETFs, actively managed funds, or a tailored investment strategy that aligns with your long-term financial goals.

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