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Recent stock market volatility highlights the need to build diversified portfolios: CIBC Poll



Only one-third of investors are looking beyond Canada's borders for growth

Toronto, Jan. 13, 2015 – As Canadians head into the RRSP season, the majority of them (69 per cent) aren't protecting their investments from continued volatility in domestic equity markets through global diversification, finds a new poll from CIBC Asset Management.

Of those currently invested in equities, less than a third (31 per cent) of Canadians plan to invest in foreign equities or mutual funds with a global mandate. The poll also finds that baby boomers are the least likely to invest abroad.

"We're seeing a significant number of Canadians still not diversifying their portfolios, which can really expose them to swings in the domestic market," says Steve Fiorelli, Managing Director, CIBC Asset Management. "With the Canadian market only accounting for approximately three per cent of world market capitalization, diversifying by geographic region is one way for investors to strengthen their portfolio for the long-term. It significantly broadens your investment options and helps to mitigate risk."

Over the past five years, the S&P/TSX Composite Index has delivered an annualized total return of 7.53 per cent as of Dec. 31, 2014, compared to the S&P 500 Index, which has returned 17.78 per cent in Canadian dollar terms.

"We're likely to see volatility in the equity markets for some time until oil supply and demand imbalances resolve themselves," says Suzann Pennington, Chief Investment Officer and Head, Equities, CIBC Asset Management. "With resources and financials the two biggest weights in Canada's equity markets, it's important that investors diversify their holdings to help them meet their long-term investment goals."

In addition to geographic regions, investors should also consider a mix of balanced asset classes along with varying economic sectors to create a well-diversified portfolio, adds Mr. Fiorelli.

Key poll findings:

  • Despite recent market volatility, 69 per cent of Canadians that plan to purchase stocks or mutual funds intend to invest in Canada
  • The percentage is even higher among baby boomers, with 76 per cent between 55 and 64 years old and 77 per cent over 65 planning to invest in domestic markets
  • Only 17 per cent of investors say they have changed their investment plans as a result of recent market volatility, while 22 per cent are unsure whether or not to change their investment strategy and 61 per cent don't plan to make changes.

Strategies for investors concerned with volatility:

  • Work with an advisor: A financial advisor can help you assess your portfolio and understand its overall sensitivity to stock market volatility. An advisor will help customize a plan based on long-term investment goals.
  • Consider "balanced" investments: A strategically diversified mix of different kinds of stocks and bonds can provide a smoother ride to investment goals by mitigating the volatility of their underlying components.
  • Build in downside protection: As part of a balanced portfolio, consider investment solutions that can provide downside protection in volatile times. For example, the suite of Renaissance Optimal Portfolios leverages assets that carefully align multiple asset classes (global infrastructure, floating-rate loans, high-yield bonds, global bonds and more) and expert investment managers to offer a truly diversified approach. For more visit realoutcomes.ca

Additional key poll findings:

Where Canadians plan to mainly invest - percentage by geographic region, by age:

  Canadian Equities, Funds Global Equities, Funds
National Average 69% 31%
18-24* 65% 35%
25-34 65% 35%
35-44 67% 33%
45-54 61% 39%
55-64 76% 24%
65 and over 77% 23%

The results presented in this document were gathered through a Web survey conducted by Leger from November 21 to 25, 2014 among a representative sample of 1,505 English- or French-speaking Canadians, 18 years of age or older, who have an investment portfolio for retirement. Using data from Statistics Canada, the results were weighted according to gender, age, region, language spoken at home, education and whether or not children are present in the household to ensure a sample representative of the entire population under review. The margin of error—which measures sampling variability—is + / - 2.53%, 19 times out of 20. *Low sample size.