We frequently analyze purchasing power parity (PPP), which says that fairly valued exchange rates should cause similar items to have the same price no matter where in the world they are purchased. 

The Bank of Canada’s July 12 overnight interest rate hike of 25 bps to 0.75% will be the first of several if the market consensus proves correct. This opens up possibilities for investors who want exposure to equities outside Canada but realize that the euro, yen and other currencies may be vulnerable relative to CAD if the BOC stacks up the rate hikes. 

It is commonplace for money managers and advisors to assemble portfolios in which Canadian equities make up half or even three-quarters of the total mix, a quizzical bias for a stock market that makes up only about 3% of the MSCI All Country World Index.

The overwhelming majority of our clients are up to their necks in Canadian stocks, quizzically allowing themselves to be kept up at night by the same two sectors, year after year. 

As most global bond yields remain near historical lows, the ability for investors to generate income from core fixed income holdings continues to be constrained. Typically, core fixed income benchmarks within many investor’s portfolios are dominated by sizeable exposures to low yielding government securities. As a result, following such a market capitalization weighted benchmark generally reduces investors’ ability to produce meaningful yields, while at the same time, also reducing their ability to generate sufficient income from core portfolios.