Foreign content creeping higher

Canadian investors appear to be slowly ratcheting up their exposure to foreign markets, possibly heeding advice to take some profits from the three-year Canadian equity rally.

A recent poll by RBC Financial Group found that there has been a slight increase in foreign holdings in RRSPs, but that Canadians still prefer domestic investments for the bulk of their retirement savings.

Still, the survey found foreign content holdings had risen to 14% in 2005, following the elimination of the 30% foreign property, from 11% in 2004. This may be as far as investors want to go, at present, as 79% said they had no intention to increase their foreign stake.

A small percentage showed more spirit for adventure, as 12% said they planned to increase their exposure to foreign markets over the next 12 months, with almost one-third of those saying they expected superior returns.

“Canadians are still testing the waters when it comes to foreign investing, but our survey results suggest that some of us are preparing to wade in a little deeper,” said Dave Richardson, vice-president, RBC Asset Management. “It’s still relatively soon after foreign content restrictions have been lifted and investors may need more transition time to work with their financial advisors to learn about the opportunities available to them in foreign markets.”

There is plenty of room for advice in this field, as 62% of respondents said they were confused by the number of products on the market.

“Investors should keep in mind that investing in foreign funds is a way to broaden their exposure, reduce risk and strengthen their portfolios,” said Richardson.

Don Reed, president and CEO, Franklin Templeton Investments, believes it is likely that Canadian investors will increase their foreign exposure to 60% over the course of several years, a level he says he would be comfortable with.