Benefits of International Equity Investing
JCIC International Equity Portfolio Shining Bright in 2025
The S&P 500 is an index tracking the stock performance of 500 leading publicly traded companies in the United States. In four of the past five years, it has outperformed Canadian and International equities. This has led some investors to question the rationale behind holding assets outside the US. This perspective is changing rapidly.
By the end of 2024, the gap in expectations and valuations between the US equity market and international equity markets reached significant levels. As of year-to-date ending May 30, 2025, the S&P 500 has seen lagging returns. The S&P 500 Total Return Index is up 1.1% in USD but down 3.5% in CAD. In contrast, the MSCI EAFE Total Return Index has risen by 12.1% in CAD, and our JCIC International Equity portfolio has returned an impressive 22.9% so far this year.
Currently, Canada represents only 2.8% of global equity market capitalization, indicating that 97.2% of investment opportunities lie outside our borders. But for decades, it was difficult for Canadians to access those opportunities. It was only in the year 2000 that the Canadian government increased the foreign RRSP limit from 20% to 25%. They raised it again to 30% in 2001 and removed all restrictions in 2005.
The segments of the global equity market are composed as follows: Canada is at 2.8%, the USA dominates at 62.6%, developed markets—including Europe and Japan—contribute 25.5%, and emerging markets account for the remaining 9.1%, with China representing 2.4%. Naturally, after Canada, the primary destination for Canadian investments has been the USA, which is home to many of the world's largest companies. But we have found that there is untapped potential in the other 34.6%.
MSCI All Country World Index Composition
International investing is beneficial for every type of investment portfolio
Consider your consumer purchasing decisions. What brand of car do you drive? Is it a BMW (German), Toyota (Japanese), or Hyundai (Korean)? Even if you own a Jeep or RAM truck, its parent company is now Italian. When making purchases for ourselves, we consider worldwide brands to find the best fit; we don't limit ourselves to only Canadian or American products. The same principle applies to investing in global equities. International investing offers a wider variety of choices, enabling investors to select the best companies globally and access market segments that may be underrepresented in North American markets.
Global investing does three things: it provides diversification, reduces portfolio volatility, and enhances potential returns. This chart illustrates the 10-year equity index returns in Canadian dollars for the TSX, S&P 500, and MSCI EAFE index—representing non-North American developed markets.
Over different time periods, each market has shown varying performance. From 2014 to 2024, the S&P 500 was the most lucrative option. Between 1997 and 2007, the Canadian TSX led in returns. In contrast, from 1984 to 1994, international markets demonstrated the highest returns. By holding a diversified global portfolio, investors can capture higher potential returns in other markets and reduce overall volatility in the long run.
Another advantage of global investing is the ability to benefit from regional differences in economic cycles, valuations, earnings growth, and momentum. This second chart compares regional indices based on their price-to-earnings ratio for 2025 and 2026, earnings-per-share growth, and dividend yields.
Currently, the US market is the most expensive, trading at a historical premium for various reasons. This premium is significantly elevated compared to the past. Additionally, expectations for earnings growth in the US for 2025 have weakened from previously high standards, while international earnings growth expectations have improved from previously low levels. This trend, coupled with substantial valuation differentials and uncertainties related to trade wars, has favored the performance of international equities.
What it all means for you
In summary, there are compelling reasons to maintain a globally diversified portfolio across all regions. Such an approach offers greater opportunities in finding the best investments, reduces portfolio volatility, and enhances potential returns over the long term.
This report was prepared by Kai Lam, JCIC’s Chief Investment Officer. To get regular updates from him and the JCIC team follow us on LinkedIn or Facebook. Or you can reach out to one of our relationship managers for more information.
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