Home bias strong in affluent investors

There is a general assumption in the financial industry that investor sophistication increases along with net worth. But a recent survey by Brandes Investment Partners finds affluent investors fall into same home bias trap as everyone else.

The firm’s Global Investing Study, found that Canadians with more than $250,000 in investable assets hold, on average, only 15% of their equity portfolio in international stocks.

While the remaining 85% includes U.S. assets as well as Canadian, that still represents a significant overweight to North American markets. On average, Canadian markets account for 66% of investors’ total portfolios and 64% of their equity portfolios.

“You would of course expect Canadians to have a home-market bias, but when two-thirds of their equities are here, along with their real estate and jobs, that’s putting a lot of eggs in one Canadian basket,” says Oliver Murray, president and CEO of Brandes’ Canadian operation.

“We are concerned that affluent Canadian investors are focused entirely on how good Canada is now and are not properly diversified for the long run. Investors should use their strong Canadian dollars to take advantage of global investment opportunities and at the same time get a bit better diversified.”

When asked why they were so heavily invested in Canadian markets, 79% investors claimed the domestic market provided adequate diversification—a somewhat puzzling claim given the massive overweight to resources and financials, with virtually no meaningful exposure to technology or healthcare.

This was not the only disconnect, however.

The majority (58%) of affluent investors rated their investment knowledge as very high or somewhat high, but a massive 95% did not understand Canada’s foreign content rules for RRSPs. Only 5% knew there is no limit on foreign content, while 10% believed their RRSP had to be 100% Canadian.

“If 95 per cent of affluent Canadian investors don’t know there are no longer foreign content rules, a red flag should go up,” said Murray. “This number is surprising, given that over half the Study respondents rank their investment knowledge high.”

To read the Brandes report, click here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.