Over the past decade, the S&P 500 Index in the United States has significantly outperformed Canada’s S&P TSX Index. When measured in Canadian dollars, the S&P 500 delivered an annual compound rate of return of 15.3%, while the TSX was roughly half that, at 7.7%.
Two key issues have led to Canada’s stock market underperformance. First, Canada’s productivity (as measured by GDP per capita) has fallen behind its peers in the developed world due to lagging private sector capital investment, high internal trade barriers that prevent domestic companies reaching scale, and protection of important industries from foreign control. This has led to several domestic duopolies and oligopolies which dampen competition and discourage innovation. Second, the Canadian economy is insufficiently exposed to technology, advanced manufacturing and pharmaceutical industries while remaining over-levered to resource extraction, financial services, and housing. While rising domestic home prices add to people’s sense of well-being, they do not add to the productive capital base of the country and redirect savings that would otherwise be available for increased capital investment.
In 1980, Canada and the United States were tied for first as the world’s most productive economies. While the U.S. continues to lead the world in innovation and growth, Canada is now ranked 15th in global productivity and falling. It is now only 71% as productive as its southern neighbour, a key reason why its currency trades at a significant discount to the U.S. dollar.
Productivity and a growing economy are vital to a nation’s wellbeing and ultimately determine the standard of living for its citizens. While equitable wealth distribution in a modern society is a desirable pursuit, it is only sustainable when funded by positive wealth creation. A country with declining productivity, a weak currency, and an inability to compete will find itself with a declining relative standard of living.
Over the past 15 years, we have shifted client portfolios to an increased weighting in U.S. equities. We sought superior portfolio diversification by investing in sectors that were not adequately represented in the Canadian stock market, including Information Technology, Healthcare, and Industrials. In subsequent years, we added more U.S. companies in the Consumer Discretionary, Consumer Staples and Financial sectors. This has provided exposure to truly multinational companies with a superior global reach and has insulated portfolios from a declining Canadian dollar.
While Rempart is a Canadian-based investment manager, our priority is to manage portfolios in a manner which protects the capital base while generating steady returns with minimal volatility. Being able to choose investments from across the entire North American spectrum greatly helps us achieve this objective. Although we continue to invest in a number of standout Canadian companies, the overall depth of the U.S. market and the more appealing positioning of those companies typically leads to better opportunities south of the border. Most importantly, regardless of country, our focus remains on high quality companies with solid long-term prospects.
First Quarter 2024
Over the past decade, the S&P 500 Index in the United States has significantly outperformed Canada’s S&P TSX Index. When measured in Canadian dollars, the S&P 500 delivered an annual compound rate of return of 15.3%, while the TSX was roughly half that, at 7.7%.
Two key issues have led to Canada’s stock market underperformance. First, Canada’s productivity (as measured by GDP per capita) has fallen behind its peers in the developed world due to lagging private sector capital investment, high internal trade barriers that prevent domestic companies reaching scale, and protection of important industries from foreign control. This has led to several domestic duopolies and oligopolies which dampen competition and discourage innovation. Second, the Canadian economy is insufficiently exposed to technology, advanced manufacturing and pharmaceutical industries while remaining over-levered to resource extraction, financial services, and housing. While rising domestic home prices add to people’s sense of well-being, they do not add to the productive capital base of the country and redirect savings that would otherwise be available for increased capital investment.
In 1980, Canada and the United States were tied for first as the world’s most productive economies. While the U.S. continues to lead the world in innovation and growth, Canada is now ranked 15th in global productivity and falling. It is now only 71% as productive as its southern neighbour, a key reason why its currency trades at a significant discount to the U.S. dollar.
Productivity and a growing economy are vital to a nation’s wellbeing and ultimately determine the standard of living for its citizens. While equitable wealth distribution in a modern society is a desirable pursuit, it is only sustainable when funded by positive wealth creation. A country with declining productivity, a weak currency, and an inability to compete will find itself with a declining relative standard of living.
Over the past 15 years, we have shifted client portfolios to an increased weighting in U.S. equities. We sought superior portfolio diversification by investing in sectors that were not adequately represented in the Canadian stock market, including Information Technology, Healthcare, and Industrials. In subsequent years, we added more U.S. companies in the Consumer Discretionary, Consumer Staples and Financial sectors. This has provided exposure to truly multinational companies with a superior global reach and has insulated portfolios from a declining Canadian dollar.
While Rempart is a Canadian-based investment manager, our priority is to manage portfolios in a manner which protects the capital base while generating steady returns with minimal volatility. Being able to choose investments from across the entire North American spectrum greatly helps us achieve this objective. Although we continue to invest in a number of standout Canadian companies, the overall depth of the U.S. market and the more appealing positioning of those companies typically leads to better opportunities south of the border. Most importantly, regardless of country, our focus remains on high quality companies with solid long-term prospects.