Canada equity managers up domestic exposure; keep eye on Brexit

By Fergal Smith
TORONTO, June 20 (Reuters) - Canadian equity fund managers
say they have raised their exposure to domestic stocks over
recent months because of improved confidence in the local
market, while keeping a close eye on the risk that would be
posed by Britain's withdrawal from the European Union.
Canadian investors suffered last year as the main stock
index fell 11 percent, its worst annual showing since the
financial crisis.
However, the Toronto Stock Exchange's S&P/TSX composite
index .GSPTSE has rallied 7.7 percent year-to-date,
outperforming many other major markets as commodity prices began
to recover. The gain has spurred many managers to buy closer to
home.
"We actually started to reduce U.S. equities and increase
Canadian exposure in early March and have continued doing it in
the past three months," said Steve Belisle, senior portfolio
manager at Manulife Asset Management.
Typically, portfolio rebalancing occurs infrequently to
minimize costs. While some traders said earlier this year that
the rally was led by short covering, reallocation by fund
managers suggests it may be on a more solid footing.
Belisle said he finds stocks more attractively valued in
Canada and has reduced his U.S. exposure to 20 percent from 28
percent earlier this year.
He is not alone. Data from Statistics Canada on Thursday
showed that Canadian investors reduced their holdings of foreign
equities by C$13.9 billion ($10.9 billion) in the year to April.
That compares with a C$1.8 billion addition during the same
period in 2015.
"We have added energy and materials exposure because the
internal indicators have gotten better. The better they got, the
more we added," said Diana Avigdor, head of trading at Barometer
Capital Management, who has increased her allocation to Canada.
Foreign investors have also participated. They acquired
Canadian shares in April for an eighth consecutive month, data
showed.
Ian Nakamoto, director of research at MacDougall, MacDougall
& MacTier, said currency is another reason Canadians should
consider increasing domestic holdings, given the possibility the
U.S. dollar has peaked for now.
The possibility that British will withdraw from the European
Union has rattled global markets. The TSX has pulled back 3
percent from a recent 10-month peak, and Canada's currency and
economy are seen weakening if the "Leave" side wins.

At Global Securities, Vice President of Research Elvis
Picardo says the retracement may deepen in the near-term but
that he is happy with increased Canadian exposure.
"The market has always successfully climbed the wall of
worry," said Picardo.
($1 = 1.2801 Canadian dollars)