“Don’t put all your eggs in one basket” is a saying we know to be true. At CPP Investments, that means building a resilient investment portfolio by selecting a diverse mix of assets to reduce risk; a strategy known as diversification.
Investing across a wide range of asset classes and regions mitigates risk by balancing the ups and downs of individual assets, such as stocks, but also individual countries to reduce their impact on the entire portfolio. A diversified portfolio is more resilient because it’s designed to capture growth while providing relative security during market downturns.
As one of the world’s largest institutional investors, we seek the best opportunities – wherever they are.
Unlike some pension funds, the governing legislation of the Canada Pension Plan (CPP) doesn’t require investments to be made in specific countries. Our mandate is to invest the assets of the CPP in an effort to maximize returns without undue risk of loss, and we focus on managing the Fund in the best interests of Canadian workers and pensioners. Building a globally diversified portfolio helps us to do so.
One of the ways we protect the long-term interests of Canadians is by seeking to avoid the risks associated with concentrating our investments in a single country or region. As future CPP contributions depend on Canadian demographics and economic outcomes, holding assets outside of Canada helps us manage this risk.
Focusing overwhelmingly on Canadian assets, to the exclusion of other compelling investment opportunities, could allow for a major downturn in the Canadian economy to have an outsized impact on the CPP’s long-term sustainability.
Global diversification empowers us to strike the right balance in our portfolio for the benefit of the CPP Fund.
The Canadian dollar is largely correlated to global oil prices. When the oil sector is in decline, this may impact the Canadian economy in many ways, including job losses and, in turn, lower CPP contributions. At the same time, when the loonie declines in value, our global assets may benefit from foreign exchange gains in addition to any oil sector offsets. We consider these factors in our investment decision-making process.
We are very proud to have a strong track record of success investing in Canadian companies. From coast to coast to coast, we continue to find great opportunities across the spectrum.
At CPP Investments, 14% of our assets under management are in Canada, representing $80 billion, as of September 30, 2023. To put it in perspective, Canada’s share of global GDP was 1.2% in 2022, according to World Economics.
We have a proportionately large allocation in Canada, not just because we know the market and understand how it works, but also because we believe in the potential for Canadian investments to generate returns.
While we manage the assets of Canada’s largest pension fund, we are also a global investor. We hold investments across asset classes in 55 countries, leveraging our size and scale to unlock value and secure growth.
Our diversified portfolio has helped us achieve a 10-year annualized net return of 9.6%, as of September 30, 2023, which ranks among the top-performing pension funds in the world. Global diversification is a powerful way to enhance returns while tempering the impact of potential losses.
For example, countries grow at varying rates and even developed markets experience global changes differently. In fiscal 2023, our one-year annualized net return in the U.S. was 3.6% and 1.5% in Europe, compared to 0.3% in Canada. However, on a five-year basis, returns on Canada investments were 4.5%, compared to 9.8% on assets in the U.S. and 3.1% in Europe. Holding investments in other countries allows us to benefit from their uncorrelated growth when other markets may have softened.
Investing globally helps us:
- Spread the risk – If one asset class or region is underperforming, another might be doing well. Diversification helps balance potential losses.
- Capture potential growth – Some markets are growing faster than others, which means there may be opportunities to capitalize on higher returns.
- Secure currency advantages – Fluctuations in the Canadian dollar can be offset by investments in foreign currencies that may benefit from foreign exchange.
All investments come with risk – some may sink while others swim. Diversification is our safe harbour in choppy waters. A diversified portfolio is a strong and stable way to ride the waves of market uncertainty.
We may not know when or where the next storm may hit, but we have prepared for these uncertainties by building a resilient, globally diversified portfolio. And we’re bringing the benefits home for Canadians.
Photo Credit: iStock
“Don’t put all your eggs in one basket” is a saying we know to be true. At CPP Investments, that means building a resilient investment portfolio by selecting a diverse mix of assets to reduce risk; a strategy known as diversification.
Investing across a wide range of asset classes and regions mitigates risk by balancing the ups and downs of individual assets, such as stocks, but also individual countries to reduce their impact on the entire portfolio. A diversified portfolio is more resilient because it’s designed to capture growth while providing relative security during market downturns.
As one of the world’s largest institutional investors, we seek the best opportunities – wherever they are.
Unlike some pension funds, the governing legislation of the Canada Pension Plan (CPP) doesn’t require investments to be made in specific countries. Our mandate is to invest the assets of the CPP in an effort to maximize returns without undue risk of loss, and we focus on managing the Fund in the best interests of Canadian workers and pensioners. Building a globally diversified portfolio helps us to do so.
Balanced approach
One of the ways we protect the long-term interests of Canadians is by seeking to avoid the risks associated with concentrating our investments in a single country or region. As future CPP contributions depend on Canadian demographics and economic outcomes, holding assets outside of Canada helps us manage this risk.
Focusing overwhelmingly on Canadian assets, to the exclusion of other compelling investment opportunities, could allow for a major downturn in the Canadian economy to have an outsized impact on the CPP’s long-term sustainability.
Global diversification empowers us to strike the right balance in our portfolio for the benefit of the CPP Fund.
The Canadian dollar is largely correlated to global oil prices. When the oil sector is in decline, this may impact the Canadian economy in many ways, including job losses and, in turn, lower CPP contributions. At the same time, when the loonie declines in value, our global assets may benefit from foreign exchange gains in addition to any oil sector offsets. We consider these factors in our investment decision-making process.
Investing in Canada
We are very proud to have a strong track record of success investing in Canadian companies. From coast to coast to coast, we continue to find great opportunities across the spectrum.
At CPP Investments, 14% of our assets under management are in Canada, representing $80 billion, as of September 30, 2023. To put it in perspective, Canada’s share of global GDP was 1.2% in 2022, according to World Economics.
We have a proportionately large allocation in Canada, not just because we know the market and understand how it works, but also because we believe in the potential for Canadian investments to generate returns.
Global mindset
While we manage the assets of Canada’s largest pension fund, we are also a global investor. We hold investments across asset classes in 55 countries, leveraging our size and scale to unlock value and secure growth.
Our diversified portfolio has helped us achieve a 10-year annualized net return of 9.6%, as of September 30, 2023, which ranks among the top-performing pension funds in the world. Global diversification is a powerful way to enhance returns while tempering the impact of potential losses.
For example, countries grow at varying rates and even developed markets experience global changes differently. In fiscal 2023, our one-year annualized net return in the U.S. was 3.6% and 1.5% in Europe, compared to 0.3% in Canada. However, on a five-year basis, returns on Canada investments were 4.5%, compared to 9.8% on assets in the U.S. and 3.1% in Europe. Holding investments in other countries allows us to benefit from their uncorrelated growth when other markets may have softened.
Investing globally helps us:
Spread the risk – If one asset class or region is underperforming, another might be doing well. Diversification helps balance potential losses.
Capture potential growth – Some markets are growing faster than others, which means there may be opportunities to capitalize on higher returns.
Secure currency advantages – Fluctuations in the Canadian dollar can be offset by investments in foreign currencies that may benefit from foreign exchange.
All investments come with risk – some may sink while others swim. Diversification is our safe harbour in choppy waters. A diversified portfolio is a strong and stable way to ride the waves of market uncertainty.
We may not know when or where the next storm may hit, but we have prepared for these uncertainties by building a resilient, globally diversified portfolio. And we’re bringing the benefits home for Canadians.
Why active management is the right strategy for the CPP Fund
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