Canada vs. U.S. Stocks: Where Jonathan Wellum Invests His Money

Market Size and Opportunity

• 🌎 The U.S. market cap is approximately $50 trillion, vastly larger than Canada's $2.5 trillion, offering a significantly broader opportunity set.
• ⚡ Liquidity in the U.S. market is also multiples better than in Canada, facilitating easier trading.

Sectoral Differences: Canada's Concentration

• 🇨🇦 Canada's market (TSX) is heavily concentrated, with energy (17-18%) and materials (13%) comprising over 30% of its value.
• 🏦 Canadian financials represent another significant portion, around 31-32%, meaning energy, materials, and financials together make up nearly two-thirds of the TSX.
• 🔬 In contrast, sectors like healthcare are a much smaller percentage in Canada (0.4%) compared to the U.S. (11%), highlighting different economic focuses.

U.S. Dominance in Technology and Innovation

• 💡 While Canada has tech origins, companies often gravitate to the U.S. for capital and growth due to its more dynamic venture capital and private equity landscape.
• 🚀 The U.S. is the dominant global player in technology and AI, driving productivity gains, a sector that is very small in Canada.
• 📈 U.S. markets benefit from policies encouraging technological innovation and lower capital costs, further fueling this sector.

Currency and Tax Considerations

• ⚠️ Currency fluctuations, particularly the CAD vs. USD, can significantly impact cross-border investment returns, with swings of 30-40% possible.
• 🏦 Canada's dollar is often seen as a commodity currency, making it susceptible to global economic cycles.
• 🤝 Tax treaties between Canada and the U.S. generally make cross-border stock investing manageable, with a 15% withholding tax on dividends and standard capital gains taxes.

Historical Performance and Investment Allocation

• 📉 Canadian markets, being more cyclical and resource-focused, have historically delivered lower compound annual returns (e.g., 6-7%) compared to the U.S. S&P 500 (double-digit returns).
• 💎 Despite overall U.S. outperformance, Canada offers potential hidden gems and attractive valuations in sectors like resources, energy, and specific companies like Cameco, Franco-Nevada, and Brookfield.
• 📊 Wellum's current equity allocation is approximately 60-65% in U.S. companies and the remainder in Canadian and European stocks, based on quality and valuation.
• 🔍 Value investors can find overlooked opportunities in Canada due to less passive money flowing into its smaller indexes, but will buy U.S. leaders if they offer superior value.