IMCO CEO Bert Clark Shares His Views on US-Canada Relations
Like many others, I have been taken aback by some of the pronouncements and actions of the new Trump administration. It has felt jarring.
America embodies much of what countries aspire to, but it also frequently disappoints, which probably explains why it is often described as “exceptional” – a term that seems deliberately, in important ways, neutral.
Whatever its shortcomings, since WWII, America has been a critical and mostly reliable supporter of democracy, territorial integrity, free trade, international development and collaboration on matters of global importance. They have shaped the post war world in ways that have improved the lives of billions of people. Unfortunately, today, US support for these important things feels much less certain.
Like many other Canadians, the pronouncements and actions of the Trump administration have upset me. It has felt personal. America has been our closest ally and trading partner for decades. We have fought wars together and many of us have close friends and family who are American. A trust that was forged over decades feels damaged. So, I have to keep reminding myself, that the actions of the current administration are not representative of the views and character of the vast majority of Americans. They are our friends. They are extremely decent and impressive people.
A Passing Tempest with a Silver Lining?
It's always possible that this current tempest will subside. The administration will be chastened by markets or other big events will intervene. Presidents are powerful, but they are not omnipotent. Their terms are often spent responding to events they did not engineer: the fallout from 9/11 (Bush), the GFC (Obama), Covid (Trump). It is still early days for the Trump administration.
If there is a silver lining to the jarring change, it’s that it may prod us—Canada—to act on things that we know are important but have been slow to address: reducing interprovincial trade barriers, promoting entrepreneurship, advancing nation-building infrastructure projects like we did in the past, reducing regulations, diversifying our trade relationships and ensuring taxes are competitive.Canada is, and always has been, a great country. We have the second biggest landmass. We are blessed with vast amounts of natural resources. We have high levels of education and world class universities. We have a culture that is inclusive. We are polite (manners and morals are nothing to be ashamed of), but we are also brave and principled and consistently stand up for what is right. We will drop the gloves when we need to. Time and again, we have made big sacrifices to come to aid of others. This may be the moment that forces us to recognize all of this, find our mojo and fulfill our potential.
So far, I have been extremely proud of how our leaders—particularly the Premier of my province, Doug Ford—have responded. They have been principled and tough. We will stand up for ourselves.
Or a Powerful New Development?
As an investor, things have also felt jarring.
The US is an unavoidably big deal for all global investors. US companies represent 64% of the global public equity All Country World Index. Nine of the 10 largest publicly listed companies in the world are US companies. Nearly 90% of foreign exchange transactions are conducted in US dollars. As a result, US assets and the US dollar dominate global investment portfolios. In 2024, foreign investors held around $17-Trillion of US public equities.
Over the long term, US exposure has produced very strong results for investors. $10,000 invested in the S&P 500 fifty years ago would be worth $2,806,842 today – six times more than $10,000 invested in an index consisting of developed market equities, other than the US!
And, in times of market distress, the US dollars has often served as a “safe harbour” for foreign investors, limiting their downside. The US dollar was up by as much as 12.7% against the Canadian dollar during the 1999 dot com crisis and appreciated by 42% during the 2008-2009 global financial crisis.
Long term investment success involves sticking to the things that have been shown to work over the long term and avoiding the most common pitfalls. This means:
- building well diversified portfolios;
- relying on growth assets (like equity credit, real estate and infrastructure) to generate higher returns, as opposed to leverage or market timing;
- only looking to outperform where you have some real advantage;
- having sufficient liquidity to ride out downturns and avoid being a forced seller; and
- steering clear of excessive complexity.
It also means managing stress and sticking to these things even when things look scary and very uncertain, as they often do.
But sticking to the plan doesn’t mean ignoring new information or failing to adapt when things fundamentally change. And sometimes they do. The end of Bretton Woods meant floating exchange rates and currency fluctuations that introduced a new element of risk to investment portfolios. The development of derivatives allowed investors to gain access to market segments and hedge risks in ways that were previously much more difficult, if not impossible. China’s entry into the WTO and economic reforms opened new investment opportunities. Basel III and Dodd Frank helped spur the expansion of private credit. These and other developments over the years fundamentally changed the way many investors invest. Things change and investors need to adapt.
So, do the changes the Trump administration appears committed to introducing signal a fundamental change in the way investors ought to think about their portfolios and specifically their US and US dollar exposure? If the US will be less reliable in terms of supporting allies and international collaboration, will it also be less reliable as a core element of global investment portfolios?
The US has been counted out before. In the 1980s, Japan was thought of as the economy and stock market of the future. In 1987, its stock market grew to be larger than the US stock market. Similarly, in the late 1990s and early 2000s, China was considered the economy and investment opportunity of the future. And yet, since the time the Japanese stock market surpassed the US stock market in size, US public equity returns (as represented by the S&P 500) have exceeded those of the Japanese market (as represented by the Nikkei) by 23 times. And, since October 2002 (the dot com low), S&P 500 returns have exceeded the returns of the Shanghai Composite by 182%.
Sticking to the Fundamentals, Avoiding Speculation and Moving Cautiously
So, how do I think about the shifting ground and uncertainty today?
I think of it as a good reminder of why simple strategies like an all-US public equity portfolio would be way too risky for us and many investors like us. An all S&P 500 portfolio may have seemed like an “obvious” thing not so long ago, given recent S&P 500 returns. But, that kind of performance cannot continue forever. And today, it would feel very risky to have such a concentrated portfolio.
Today’s uncertainty is also a reminder that investors need to understand and regularly revisit their biggest exposures, to make sure they are comfortable with them. Today, that means thinking about, among other things, overall US and US dollar exposure. The US will almost certainly continue to be a big part of a global investor’s portfolio. I do not see a near term scenario where investors could easily replace the huge opportunity set the US represents across many different asset classes and market segments or the reserve currency status of the US dollar. But it is entirely appropriate today to be thinking about the right size of those overall exposures.
No matter what investors conclude about their US and US dollar exposure going forward, it would not be wise to make any big change quickly.It is certainly possible that things are changing in a fundamental way. But I start with the core belief that it is really difficult to predict these sorts of big changes. Instead, it is far better to do the hard work of monitoring and adapting to changes that have become fairly certain, rather than speculating on things that are really hard to predict. And big portfolio changes are best done in thoughtful way, over time, to reduce the potential for regret.
I hope that the recent activities of the Trump administration are but one more example of Winston Churchill’s observation that “Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.” In the meantime, for those with well diversified portfolios across both US and non-US assets, and within the US, across asset classes and market segments, caution—as opposed to quick and bold action—should be the guiding principle.
As a reminder, Bert Clark wrote an excellent comment for the Financial Post late last year stating the S&P 500’s performance in 2024 made investing look easy, and this year it's anything but easy precisely because of the high concentration of Mag-7 stocks at the beginning of the year (see my Outlook 2025 for more details).
As investors are finding out, momentum is fun on the way up, painful on the way down.
High beta stocks are stocks that move a lot more than the market in either direction and if your portfolio is loaded with them, you'll definitely feel it when markets are experiencing a significant selloff like the one we are seeing over the past two weeks where Nasdaq stocks are down 15% from the recent peak.
It's the speed of the latest adjustments that is unnerving investors, especially if they are exposed to the high octane (high beta) names.
But moving out of US stocks at the wrong time can also be a very unwise decision.
As Bert notes above:
Today’s uncertainty is also a reminder that investors need to understand and regularly revisit their biggest exposures, to make sure they are comfortable with them. Today, that means thinking about, among other things, overall US and US dollar exposure. The US will almost certainly continue to be a big part of a global investor’s portfolio. I do not see a near term scenario where investors could easily replace the huge opportunity set the US represents across many different asset classes and market segments or the reserve currency status of the US dollar. But it is entirely appropriate today to be thinking about the right size of those overall exposures.
[...] It is certainly possible that things are changing in a fundamental way. But I start with the core belief that it is really difficult to predict these sorts of big changes. Instead, it is far better to do the hard work of monitoring and adapting to changes that have become fairly certain, rather than speculating on things that are really hard to predict. And big portfolio changes are best done in thoughtful way, over time, to reduce the potential for regret.
Every investor needs to understand their portfolio and where they are exposed to significant downside risk, but they also need to understand the power of the US dollar, especially during a crisis, and why it's very hard to replace US stocks in a globally diversified portfolio (without giving up upside performance over the long run).
But understanding your exposure is critically important.
For example, my aunt called me three weeks ago to tell me her hotshot broker shoved her and her husband in Nvidia, Tesla and some other Mag-7 stocks and she didn't feel comfortable with her exposure.
She and my uncle are in their 70s, retired and when she read me the list of stocks, I was astonished that her broker didn't take their age into and retired status into consideration.
Absolutely nuts, I told her to tell him to have a more balanced portfolio with bonds, dividend stocks and some tech exposure -- max 15%, not 70%!!
Alright, back to Bert Clark's comment, I agree with him on many points, it's a wake-up call for Canada and we need an intelligent GIGA response.
As far as Trump and his tariffs, jury is still out, I am convinced this is posturing to get better deals and he now realizes this is a terrible policy.
How can you make America great again when US consumers are feeling the negative wealth effect of an imploding stock market and higher prices from inflation?
Just doesn't add up in any way, shape or form.
Come April 2nd, and likely before that, I expect President Trump will walk back all these tariff threats.
Anyway, I mostly agreed with Bert's latest comment, except I am less enamoured with Doug Ford's retaliatory policies and think he's overdoing it (especially tariffs on energy, not very wise).
The Canadian politician who impresses me the most these days is Alberta Premier Danielle Smith.
She didn't impress me on AIMCo but I give her an A+ on everything else. She gets it.
Doug Ford is alright but when he starts thumping his chest, I start cringing.
Alright, enough rambling on politics.
Below, central banker Mark Carney will become Canada’s next prime minister after the governing Liberal Party elected him its leader Sunday as the country deals with U.S. President Donald Trump’s trade war and annexation threat, and a federal election looms.
Carney, 59, replaces Prime Minister Justin Trudeau, who announced his resignation in January but remains prime minister until his successor is sworn in in the coming days. Carney won in a landslide, winning 85.9% of the vote.
“There is someone who is trying to weaken our economy,” Carney said. “Donald Trump, as we know, has put unjustified tariffs on what we build, on what we sell and how we make a living. He's attacking Canadian families, workers and businesses and we cannot let him succeed and we won't.”
Carney said Canada will keep retaliatory tariffs in place until “the Americans show us respect.”
“We didn’t ask for this fight. But Canadians are always ready when someone else drops the gloves,” Carney said. “The Americans, they should make no mistake, in trade, as in hockey, Canada will win."
And Ontario Premier Doug Ford announced a 25 per cent surcharge on all energy exports to the US on Monday in response to President Donald Trump's tariffs.
Ford also said his government 'will not hesitate' to cut off energy to the US 'completely' if the trade war escalates. Power & Politics hears from Ontario Energy Minister Stephen Lecce.
In my opinion, this is a bonehead move and Doug Ford has a lot to learn from Danielle Smith on why he shouldn't be imposing tariffs on energy (it's a really terrible idea that needlessly escalates the ongoing dispute). Watch the third clip I embedded below and listen carefully to Premier Smith.
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