I would like to talk about some foreign exposure in your portfolio. If you invest or trade solely in U.S.-listed stocks, you have missed out on some excellent gains as well as the opportunity to diversify geographically and reduce some exposure to the U.S. dollar.
In past commentaries, I have discussed the excellent double-digit returns in growing markets such as India, Mexico, and South Korea and rebounding markets in Japan. In China, I would avoid the loosely regulated exchanges there and advise entering ADRs trading on U.S. exchanges or in Chinese-focused mutual funds.
Given the lackluster returns we have seen in U.S. markets in 2004, 2005, and so far more than half way into 2006, investing in some of the growing non-U.S. markets would have paid huge dividends to your overall portfolio.
But if you are somewhat cautious about investing in overseas markets, you only had to look north to Canada, where markets have performed much better than U.S. markets.
The benchmark Toronto Stock Exchange’s S&P/TSX composite index reached a historical high of 12,080.53 on February 6, but has since come back down. The index is up 4.56% this year.
A strong weighting in commodity stocks such as energy, gold, and base metals, accounting for about 40% of the index, has driven the S&P/TSX composite index.
If you are positive on commodities going forward like I’m am, this Canadian index might be worth a look. Unlike emerging markets such as India, Mexico, or South Korea, financial reporting in Canada is very good and follows GAAP.
When you trade Canadian listed companies on the S&P/TSX composite index, you can rest assure that the numbers you are seeing represent a realistic picture of the company. Moreover, the political system is sound, the financial infrastructure is highly regulated, and the economy is doing well.
In addition to the share price appreciation, investing in Canadian stocks or an index also gives you exposure to a currency that has risen over 20% against the U.S. dollar. You can also trade some Canadian stocks listed on U.S. exchanges.
If you are looking for more growth and added risk, you can also buy or trade the S&P/TSX SmallCap Index or S&P/TSX MidCap Index.
If you are looking for blue chip index, there is the S&P/TSX 60 Index.
If you are looking for emerging and speculative issues, there is the S&P/TSX Venture Composite Index. You can go to www.tsx.com for more info.