By Scott Ronalds

In our conversations with clients recently, many are shocked to hear the extent to which the Canadian market has trailed the U.S. and even global markets over the past few years.

Annualized Returns as of May 31, 2012

For much of the 2000’s, our market was the place to be. Resource stocks were hot and our banks were put on a pedestal relative to their global counterparts. The rest of the world wanted what we had. Talk of a ‘lost decade’ in the U.S. and slower growth in Europe scared investors away from foreign markets. It felt pretty comfortable being fully invested in Canada.

Yet, you’re not diversified if you’re comfortable with everything you own. This Peter Bernstein quote is fitting. Investors with benchmark-oriented Canadian stock portfolios have experienced lower returns and greater volatility than those with globally diversified portfolios over the past few years. It hasn’t been comfortable investing in U.S. and overseas stocks over the past several years (and the headlines remain ugly), but it’s paying off.

To be clear, we’re talking about a short time frame and stock investors should have a much longer focus than 1, 2 or 3 years. And we’re not slamming Canada either; there are still many great companies and investment opportunities in our backyard. But there are also great companies and compelling prospects in the U.S., Europe and Asia.

Investors may prefer to focus on Canada but the rest of the world should not be out of focus (see 100% Canadian? Take off, eh.). Any given market can have a good run, and market leadership changes without warning, which is why it’s good to play in a bigger yard.