Investing In Canada

The importance of global diversification is often discussed as important as an investor in today’s global economy, and with the MSCI World Index and EAFE (Europe, Australasia and Far East) Index both up about 27% in U.S. dollar terms in 2009, that message remains important. However, over the past few years, we’ve been reminded of the great investment opportunities in Canada.

More Than Just Resources

Canada has not gone unnoticed by investors abroad. A report last week indicated that Canada has benefited from record net inflows of foreign investment in Canadian securities.

By extension, demand for the loonie has also increased, and this is one of the reasons why the Canadian dollar currently sits near parity with its U.S. counterpart.

Foreign investors purchased $109 billion worth of Canadian securities in 2009, and another $11.8 billion in the first month of 2010. They were particularly keen on Canadian corporate bonds in 2009, purchasing nearly 80% of net new corporate issues. Meanwhile, Canadian investors were noticeably more conservative – nearly all bonds issued or backed by the Government of Canada stayed in Canada.

Why Canada?

There are good reasons for this renewed interest in Canadian investments. Canada has a highly educated workforce, a rock-solid financial system, and one of the strongest economies in the developed world. What’s more, the Canadian stock market has delivered some of the best returns in the world over the past 10 years. (Could this be a warning sign though?)

All of these points underscore the importance of having Canadian exposure as a core holding in a well diversified portfolio.

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