Investors should reconsider their exposure to the tech-heavy S&P 500 Index and look to Canada’s US$3 trillion stock market to diversify their portfolios.

That’s the message from Ian de Verteuil, head of portfolio strategy at CIBC World Markets, who added that the future of tech stocks could be less lucrative for investors as policymakers consider increasing interest rates and corporate taxes.

“Outside of the rise in interest rates, technology firms have to deal with the risk from rising tax rates, deglobalization and additional regulation,” de Verteuil wrote Friday in a note to clients. “Investors need to be aware that simply investing in the S&P 500 provides less diversification than in the past. We continue to prefer the ‘tech-lite’ S&P/TSX.”

The S&P/TSX Composite Index’s small weighting to tech stocks has kept this year’s sell-off at bay. The S&P/TSX is down 1.5 per cent in 2022, compared with more than 9.7 per cent for the S&P 500 Index. Investors have fled mega-cap tech companies like Meta Platforms Inc., Apple Inc., Amazon.com Inc. and Alphabet Inc. amid a rotation out of growth and into value. At the same time, commodity-driven stocks like gold miners, energy companies and banks have soared this year. Together, these listings make up about 50 per cent of the S&P/TSX.

Foreign investors are piling into Canadian stocks at a record level. Inflows hit a high of $217.8 billion (US$171 billion) in 2021, more than twice the average annual investment recorded in the past decade, according to Bank of Montreal Capital Markets.

Market volatility won’t dissipate any time soon, and so investors should re-evaluate their exposure to technology, John Christofilos, chief trading officer at Toronto’s AGF Management Ltd., said in an interview. “Canada is definitely a market that I would be looking at, and the rest of the world is starting to pay attention as well,” he said.