Dale Jackson

Personal Finance Columnist, Payback Time

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The year is half over and global equity markets have recovered most of the losses caused by the unprecedented shutdown of the global economy.

That’s the good news. As we enter the second half of 2020, the COVID-19 pandemic is far from under control, the threat of another economic freeze is real, and this year’s gains are tenuous. 

And for Canadian investors with too much Canada in their portfolios, it’s a longer climb to break even for the year.

The murky outlook has many long-term investors saving for retirement in a holding pattern until the corporate world can accurately forecast earnings. If their portfolios are properly diversified gains from the good companies, geographic regions and sectors should more than compensate for losses in weaker areas over time.  

In the meantime, mid-year is a great opportunity to see how your portfolio is stacking up against the markets and to appreciate the importance of managing risk through diversification. If performance is lacking it might be time to make some tweaks. 

Even after a remarkable second quarter, the S&P/TSX Composite Index is down nearly ten per cent so far this year. The global economic freeze, combined with a crash in crude oil prices hit the resource-heavy Canadian stock market hard. Energy-related stocks are still at about half their value since the beginning of 2020. Canadian financials, which include the big banks and insurance companies, helped stem the loss but are still down almost 20 per cent from the start of the year. Many stocks and sectors helped buoy the TSX but when two-thirds of all stocks are either financials or resource related, there aren’t many places to hide. 

Canadian-listed stocks account for less than three per cent of publicly-traded stocks globally. In comparison, U.S. stocks account for about half and are much better diversified by sector and geography. Many of the companies listed in the U.S. have a global reach, which gives Canadians easy access to the world through our southern neighbours.  

Like the TSX, the blue-chip heavy Dow Jones Industrial Average is down about ten per cent and the more globally diversified S&P 500 has managed to keep year-to-date losses at three per cent. 

However, the technology-heavy Nasdaq Composite is actually posting a gain of almost 14 per cent as investors bet stocks like Apple Inc., Microsoft Corp., Facebook Inc., Amazon.com, Netflix Inc. and Google parent Alphabet Inc. will continue to thrive under the threat of pandemic.  

Canadians who got global exposure in Canadian dollars took a slight hit on a loonie that has slipped since the start of the year (73 cents to the U.S. dollar from 77 cents) but Canadians trading in U.S. dollars got an additional boost when you convert to Canadian dollars.

Regardless of the currency, many globally-focused Canadian portfolios are getting some relief from emerging markets including China, India and Brazil. The MSCI Emerging Markets Index has managed to hold year-to-date losses at five per cent after plunging more than thirty per cent in March due to the added strain of U.S.-China tensions.

It’s not easy for the average investor to outperform the broader markets, but a properly diversified portfolio should at least reflect them. If your portfolio returns are looking too much like the TSX and not enough like the rest of the world, it might be time to let your money venture beyond our borders. 

Payback Time is a weekly column by personal finance columnist Dale Jackson about how to prepare your finances for retirement. Have a question you want answered? Email dalejackson.paybacktime@gmail.com.