![\"picture](\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/Midjourney.jpg\")
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source: Midjourney<\/p>\n
The Chrysler 440 cubic inch motor was the largest of its\u00a0big block engines.\u00a0 Debuting in 1966, this 7.2 litre behemoth featured pistons that were almost 5″ in diameter.\u00a0 Gear heads will debate whether it, the Ford 427 or the Chevrolet 454 were the biggest and baddest.<\/p>\n
They’re all wrong!\u00a0 All of these motors would fit inside a single cylinder of the\u00a0W\u00e4rtsil\u00e4 RT-flex96C ship engine.\u00a0 Each cylinder of this Finnish built whale\u00a0has a displacement of 1,828 litres.\u00a0 Three stories tall with 20 foot long, 38″ diameter pistons, the largest diesel maritime engine on earth generates a staggering 107,000 horsepower.<\/p>\n
![\"largest](\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/largest-diesel-maritime-engine.jpg\")
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Source: Adobe<\/p>\n
This engineering miracle powers some of the largest container ships on earth, steadily churning the water at 15 to102 RPMs.\u00a0 Imagine that instead of carrying containers, that ship was the US stock market.\u00a0 Then tech companies would be the storey tall engine pushing the vessel forward.\u00a0 Indeed the pistons in seven of the eight cylinders would be composed\u00a0of the largest technology companies on earth:<\/p>\n
![\"chart\"](\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/chart.png\")
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These companies have powered the US stock market to the top of the global market leader board for many years.\u00a0 All technology companies (including Tesla and Amazon) make up almost 40% of the S&P 500.\u00a0 In Canada, technology only accounts for a meager 10% of the index.\u00a0 If the US market is a container ship powered by the largest engine on earth – by comparison Canada’s a kayak.<\/p>\n
![\"a](\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/a-container-ship-vs-kayak.jpg\")
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source: Midjourney<\/p>\n
The difference in allocation to technology explains most of the relatively poor performance of the Canadian stock market compared to the S&P 500.\u00a0 The other major difference between the Canadian and US stock market is that Canada has almost 3x as much exposure to our big banks, energy and utilities as the US has.\u00a0 What if we corrected that?<\/p>\n
I’m a gear-head when it comes to financial markets – when other guys are getting greasy turning wrenches in the garage, I’m generally working away at the computer.\u00a0 (I admit it, I always wanted to be gear-head but I’m really just a geek!\u00a0\ud83d\ude00) Years ago I dug into the historic returns and weights of the two indexes and discovered that if we just changed the Canadian sector weights to that of the US, we could dial up a similar return to the US.\u00a0 This week I decided to run a quick update and sure enough, the numbers still hold up:<\/p>\n
![\"graph\"](\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/graph.jpg\")
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source: YCharts.com<\/p>\n
What you’re looking at here is a synthetic TSX created with the sector weights of the\u00a0 S&P 500 (purple line) compared to the S&P 500 in orange and the TSX 60 in blue.\u00a0 Notice how closely aligned the orange and purple lines are?\u00a0 To be clear, that’s using the Canadian sector ETFs with the weights of the S&P 500.\u00a0 So we own none of the Magnificent 7 – we own Canadian technology instead.\u00a0 Think about that for moment\u00a0– we generate basically all of the upside of the S&P 500 without any exposure to the engine powering it! (Full disclosure, Canada is seriously lacking in some areas like health care stocks – so I substituted Canadian dollar hedged Global ETFs where necessary.)<\/p>\n
So far this has been a history lesson – we’ve explained why the TSX has underperformed the S&P 500.\u00a0 That doesn’t answer the more pressing question – will the US outperformance (i.e. Tech) continue?\u00a0 Let’s get more specific – should Canadian investors like you radically reduce your exposure to Canadian banks and increase your exposure to technology – to as much as 40% of your portfolio?\u00a0 Probably not.<\/p>\n
![\"inside](\"https:\/\/advisor.wellington-altus.ca\/evansfamilywealth\/wp-content\/uploads\/sites\/205\/2024\/05\/inside-a-car.jpg\")
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Another gear head analogy.\u00a0 Ever ride in a sports car or muscle car?\u00a0 It’s amazing – I love the sound of a big block with a performance cam and dual exhaust – rumbling away.\u00a0 You feel it in your chest.\u00a0 The feel of the car squatting and breaking loose, the smell of burnt rubber – it’s visceral and exciting.\u00a0 Similarly, the cornering capability of sports cars defies common sense – they corner like they’re on rails – all wheel drive pulls you through the corners.\u00a0 You need special bolsters to keep yourself from sliding out of the seat!\u00a0 Each is awesome in its own way – what they are not is smooth.\u00a0 You feel the bumps.<\/p>\n
Take another look at the purple and orange lines – see how much more they dropped in 2022?\u00a0 Intuitively, you know that having 40% of your portfolio in technology is going to increase the volatility of your portfolio.\u00a0 What is unknown is by how much.<\/p>\n
Sure I like speed and cornering – but you know what I’m a really big fan of?\u00a0 Brakes.\u00a0 Especially on investment portfolios.\u00a0 I may be a techno-optimist but that doesn’t mean that I think investors should pile into technology without any regard for having brakes.\u00a0 History teaches us that speed might get us to our destination faster – but brakes will ensure that we survive!<\/p>\n
<\/p>\n
Glen<\/p>\n
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The Chrysler 440 cubic inch motor was the largest of its\u00a0big block engines.\u00a0 Debuting in 1966, this 7.2 litre behemoth featured pistons that were almost 5″ in diameter.\u00a0 Gear heads will debate whether it, the Ford 427 or the Chevrolet 454 were the biggest and baddest.<\/p>\n","protected":false},"author":193,"featured_media":591,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","footnotes":""},"categories":[93],"tags":[400,403,109,394,20],"class_list":["post-590","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights-news","tag-global-markets","tag-portfolio-diversification","tag-risk-management","tag-technology-innovation","tag-wealth-management"],"yoast_head":"\n