A call for Americans to invest in Canada
Look to Canada for the next five years, this advisory says to Americans, and have 10 per cent of your portfolio in Canadian equities.
Look to Canada for the next five years, this advisory says to Americans, and have 10 per cent of your portfolio in Canadian equities.
For ages, Canadians have been advised to reserve part of their portfolio for American securities.
Twenty or even twenty-five per cent is the portion frequently suggested by advisers. And even in the wake of a shattered financial system, America still has a lot of big, rich companies.
But with a few exceptions, you would have had to dig pretty deep to find advisers in the U.S. telling investors to hold a special corner of their portfolios open for Canadian content.
No more. We have one U.S. adviser telling his readers to “start with 10% of your equities portfolio in Canada.”
The latest edition of Richard C. Young’s Intelligence Report is full of praise for the Great White North, our resources — water especially — our banks and our dollar. Canada, Mr. Young rhapsodizes, is his top “five-year portfolio investment theme.”
Super positive mix
Mr. Young is from a suburb of Cleveland and lives in the Florida Keys. We should tell you that he is not happy with the current U.S. administration and Congress (not an uncommon opinion among investment advisory editors). It’s too far to the left from his point of view.
That alone may not account for the grass looking greener on the north side of the border, although it probably helps. But there’s a lot more to his pro-Canada stance than that.
“Water, gold, solar and security are all part of Canada’s super positive mix,” he says.
To begin, we’ll just add water and stir.
Water-rich
“Hydro provides about 19% of the world’s electricity. Surprised?” Mr. Young asks readers in the U.S. (where coal-fired and gas-fired generation still account for well over half of the electricity used). “And in water-rich Canada, the number is a shocking 62%. Lakes cover 8% of Canada, and there is more water underground than on the surface.”
Having waxed enthusiastic about Canada’s waterways, he turns to one of Canada’s biggest exporters of water, so to speak, Hydro-Quebec. It already sends a lot of electricity to the U.S. and is negotiating many more contracts, he tells his readers.
The editor does not seem to have a quibble with Hydro-Quebec’s status as a publicly owned company. Quite the contrary.
“Hydro-Quebec likes to boast that it has been a renewable and sustainable energy company since its birth,” says the editor. “And Hydro-Quebec likes to point out that, as a state-owned entity, the company can adopt to long-term business cycles without having to worry about a drop in the share price. I much like the stability here.”
He also admires the stability of Canada’s banks.
The old-fashioned way
In the financial world, Canadian banks have become the poster children for not getting into trouble — or at least, not too much trouble. They are strong, conservative and high yielding, Mr. Young asserts.
He quotes with approval The Financial Times. “In large part because of stricter regulation and their conservative culture, one that depends heavily on a vast and stable retail branch network, and a clubby working relationship, Canada’s banks have remained the strongest in the G7.”
They still operate like banks ought to operate, adds The Times. “In Canada, they do it the old-fashioned way, where when you need money you go to the bank and they review your file and they will lend you no more than 75% of the value of your house.”
Mr. Young backs up his enthusiasm with recommendations. He already had Bank of Nova Scotia (TSX/NYSE-BNS) on his Monster Master List of stocks. Now he adds Royal Bank of Canada (TSX/NYSE-RY) and Toronto-Dominion Bank (TSX/NYSE-TD).
Not surprisingly, this editor also likes the fact that Canada has no TARP (Troubled Asset Relief Program) money to spend out. He quotes Prime Minister Stephen Harper: “We have, I think, the only banks in the western world where we’re not looking at bailouts.”
To invest in this water-rich, bailout-free paradise, Mr. Young has two approaches for his readers.
Three or six stocks
As we stated at the outset, the editor advises his readers to have 10 per cent of their equities portfolios in Canada. He has been investing in CurrencyShares Canadian Dollar Trust (NYSE-FXC) and iShares MSCI Canada Index Fund (NYSE-EWC). Start with these two, he says. For many, this may be the full extent of their Canadian investments.
Mr. Young firmly believes investors should be able to carry a 32-stock portfolio. If you don’t have the “proper level of acuity and financial resources” to do so, he says, stay away from individual stocks.
But if you’re prepared to handle such a portfolio, you could have three or even six Canadians stocks in the mix, he says.
The first three would be Bank of Nova Scotia, Canadian National Railway (TSX-CNR; NYSE-CNI) and Canadian Pacific Railway (TSX/NYSE-CP).
The next three would be Royal Bank of Canada, EnCana Corp. (TSX/NYSE-ECA) and Toronto-Dominion Bank.
We know that cross-border travel is due to get a little sticker starting next week. But if advisories like this one have their way, we may see a surge in cross-border investing. Welcome to Canada.
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