Diversified portfolios require investing far beyond Canada – and the U.S., too.Getty Images
Stan Wong, a senior wealth advisor and portfolio manager, recently found himself reviewing a new client’s holdings. On paper, the portfolio looked well constructed. It included dozens of positions spanning banks, energy companies and a handful of familiar U.S. names.
A closer look told a different story.
“It’s something we see all the time. Portfolios that appear diversified are often heavily concentrated in Canada, with maybe some U.S. exposure but very little true global diversification,” says Mr. Wong, who runs The Stan Wong Group in King City, Ont., part of ScotiaMcLeod.
That disconnect sits at the heart of a persistent challenge for Canadian investors. Domestic equities represent roughly 3 per cent of global markets, but many portfolios still allocate a disproportionate share to them, often 50 per cent to 60 per cent, Mr. Wong says.
Lack of diversification is a risk, one that hasn’t disappeared though it has shifted. If Canadian investors once exhibited a clear home-country bias, today’s portfolios often reflect a North American one.
The rise of U.S. mega-cap technology companies has drawn capital south of the border, either through direct holdings or passive index exposures. “There has been some natural diversification into the U.S.,” Mr. Wong says. “But it’s often concentrated in a handful of very familiar names.”
That evolution has been beneficial, up to a point. U.S. equities offer access to global leaders in innovation, deep capital markets and strong earnings growth. But they also introduce a new form of concentration risk. Many portfolios now hinge on a narrow set of drivers: Canadian financials and resources on one side, and U.S. technology on the other.
“It’s not necessarily true diversification,” says Cody Gordon, wealth advisor and portfolio manager at Verus Financial in Vancouver, part of National Bank Financial. “You’re still tied to North America, and in many cases to a relatively small number of companies within that.”
The argument for broader global diversification is structural as much as it is cyclical. Canada’s equity market is highly concentrated, with financials, energy and materials accounting for close to 70 per cent of the benchmark index. Meanwhile, entire sectors – spanning technology, health care and advanced manufacturing – are hugely underrepresented or absent altogether.
“You’re missing big parts of the global economy, and those are often in areas driving long-term growth,” Mr. Wong says.
For Mr. Gordon, the goal is clear: “We’re trying to find the best businesses in the world, not just in North America.”
Recent market performance has begun to reinforce that need. Globally, developed markets have been outperforming since late 2024, he says, while emerging markets have shown strength since early 2025. Historically, such leadership shifts tend to emerge before portfolios adjust.
The case for global diversification is clear, and achieving it has never been more accessible.
Investors can now tap international markets through a range of vehicles, including American depositary receipts (ADRs), Canadian depositary receipts (CDRs) and a growing universe of exchange-traded funds (ETFs).
“There are ETFs covering virtually every region and sector,” Mr. Wong says.
That expansion has democratized access and introduced new layers of complexity. CDRs, for instance, allow investors to gain exposure to foreign companies in Canadian dollars, reducing currency friction. But they can carry hidden costs through spreads and fees that accumulate over time. ADRs, by contrast, may offer more efficient exposure but require investors to accept currency fluctuations.
“There’s always a trade-off,” Mr. Gordon says. “You have to balance cost with the opportunity to own high-quality global businesses.”
The proliferation of options also raises the risk of over-diversification – owning overlapping exposures that dilute conviction and lead to index-like outcomes. “You don’t want to end up paying active fees for passive results,” Mr. Wong says.
Achieving meaningful diversification abroad often remains uneven for behavioural reasons. Familiarity bias continues to anchor many investors to domestic markets. Tax considerations, including favourable treatment of Canadian dividends, also play a role. Currency volatility, regulatory requirements and geopolitical concerns further complicate decision-making.
“There are still hurdles, but the biggest one is mindset,” Mr. Gordon says. “Investors need to be willing to look beyond what they know.”
Institutional investors such as pension funds, endowments and foundations tend to maintain far lower domestic allocations. For individual investors, the transition has been slower.
The challenge is not simply investing globally but doing so with intention. That means avoiding the temptation to chase recent winners, whether in Canada or the U.S., and instead build portfolios that are resilient across a range of outcomes.
“Diversification isn’t about predicting which region will outperform next,” Mr. Wong says. “It’s about making sure your portfolio isn’t overly dependent on any single macro driver or thesis.”