Investment companies play a vital role in the Canadian economy by directing capital to productive assets and generating returns for investors. As Canada’s largest pension fund, the Canada Pension Plan Investment Board (CPP IB) stands out with over $500 billion in assets under management. Its 10-year annualized return of 10.5% offers valuable insights for individual investors in assembling their own portfolios. This article examines leading Canadian investment firms and how retail investors can emulate their strategies.
CPP IB diversifies across geographies and asset classes
The CPP IB invests across public and private equities, fixed income, real estate and infrastructure globally. Its 2020 performance saw a net return of 10.8%, with five-year and ten-year net annual returns averaging 9.6% and 10.5% respectively. The fund’s allocation in 2020 stood at 25.3% Canadian equities, 34.1% foreign developed market equities including significant US exposure, 26.1% emerging market equities, 9.5% real estate and 5% fixed income and cash. Retail investors should similarly seek diversification while maintaining significant Canadian equity and fixed income holdings suitable to their risk tolerance and investment timeframe.
Alternative investments via indirect access
While lacking the scale of institutional investors, retail investors can gain cost-effective exposure to alternative investments like private equity, hedge funds and infrastructure via publicly traded investment vehicles. Options include Brookfield Asset Management, Power Corporation of Canada, and publicly traded partnerships like Brookfield Infrastructure Partners LP.
Understand drivers of performance
CPP IB’s leading returns stem from astute portfolio construction, extensive due diligence, and exploitation of temporary market disruptions to acquire high quality assets at attractive valuations. Retail investors can apply similar principles on a smaller scale by focusing on asset allocation suitable for their risk appetite, reasonably valued securities, steady dividend payers and periodic rebalancing.
Leverage low-cost investment products
Like index ETFs and mutual funds that enable diversified market exposure at minimal costs, the CPPIB uses reference portfolios, co-investments and fund-to-fund programs for efficient alternatives investing. Retail investors should emphasize low-cost vehicles like broad market ETFs and select active managers with consistent outperformance over relevant benchmarks.
Investment companies like Canada Pension Plan IB offer valuable models for developing a resilient personal portfolio. Key takeaways include diversifying across geographies, asset classes and investment vehicles while controlling costs.