VANCOUVER (CP) - Canadian investors worried about the disappearance of blue chip names such as BCE Inc. (TSX:BCE) and Alcan (TSX:AL) from their portfolios, should remember to look outside the country for places to diversify their holdings, investment professionals suggest.
Adrian Mastracci of KCM Wealth Management says investors should hold a diversified basket of stocks and that means not just Canadian companies.
"The question is, what don't I have and what should I have? And if my portfolio is heavily into Canadian, that's not a lot of diversification because we're only two or three per cent of the world economy," the Vancouver-based portfolio manager said.
"There's lots of value in going out there and getting an international fund or an international component."
With the pending takeover of BCE by the Ontario Teachers Pension Plan and Rio Tinto's offer for Alcan, two of Canada's most widely held blue chip stocks are set to disappear, forcing investors to look for replacements.
There are even rumblings that venerable railway company Canadian Pacific (TSX:CP) is on the block: it admitted this week it had been approached by a consortium led by fellow equity stalwart Brookfield Asset Management (TSX:BAM.A).
The takeovers follow deals last year that saw Canadian miners Inco and Falconbridge taken over by foreign buyers. Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier, said investors might want to look at investing in the companies that bought up the Canadian names.
Rio's offer for Alcan follows the takeover of Inco by Brazillian firm CVRD and Anglo-Swiss Xstrata's deal to buy Falconbridge.
"The mining companies really come down to four or five big guys," Nakamoto said.
Or if they're looking to stay invested in Canada, Teck Cominco (TSX:TCK.B), which he called a "smaller version" of the global leaders.
If you held BCE for the dividend, Nakamoto suggested investors might want to look to the financial sector in Canada including the big banks like Royal Bank (TSX:RY) or TD (TSX:TD) or an insurance company such as Manulife Financial Corp.(TSX:MFC).
However if an investor held the stock because they wanted exposure to the telecom sector, the options would be different and could merit a look toward Europe, Nakamoto.
"Big names like Vodaphone come to mind... they're pretty much a leader in wireless communications around the world," he said.
Mastracci suggested investors don't need to be in a rush to reinvest moneys gained in the wake of takeovers.
"A lot of investors rush into getting their money out there and just investing right away because they don't want to miss anything. Well I think you can park the money for two or three months," Mastracci said.
"Sit back and say to yourself 'What is it that I should be doing to get to where I want to go'?"
Mastracci said he's a believer in the "basket" approach.
"A lot of investors have difficulty trying to figure out which one of these things is going to be the winner, so why not go with the basket approach?" he said.
"Buy some quality. I think if you stick with quality over the long period of time you'll do reasonably well most times."
But he said the key for investors to remember lies not with picking individual companies to invest in, but maintaining balanced asset allocation, especially after the run-up in the stock market in recent months.
It's important investors check that they are still balanced between equities and bonds the way they want to be.
"The asset allocation is still the key thing that people ought to look at because that makes the biggest contribution to the investment returns," he said.
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