Never has so much of the world's wealth ridden on a single rocket. The AI trade now accounts for almost half of the S&P 500, a share that will only climb as record-breaking mega-cap tech initial public offerings (IPOs) land in the index. And with the US making up nearly 70% of the MSCI World, global trackers are on a parallel trajectory. Has diversification within equities ever been harder to come by?
Of course, no sensible investor would abandon AI exposure altogether. We bought Nvidia in 2016 at around $1.35 a share and have since banked some $200m of gains while still holding a $100m position.
Equities have long been one of history's great engines of wealth precisely because investors could spread their risk across many of them. Yet today, many portfolios are tied to the same trade, intentionally or not. The prudent will want ballast for the journey – and need not leave the continent to find it.
The case for boring
Canada is a boring country by most rankings of excitement. From the perspective of today's markets, though, there is no higher compliment.
Canada's stocks have made it the best-performing market in North America: over the past twelve months, the S&P/TSX Composite has returned around 25% against roughly 18% for the S&P 500. It has done so without relying on a single Magnificent Seven stock, and still trades at a forward price/earnings ratio of around 16x against more than 21x for the US, with roughly double the dividend yield.
Three things make Canada the natural complement to US exposure. The first is its foundation in asset-backed sectors. Where the S&P 500 is a concentrated wager on technology, the TSX is built on banks, energy and mining.
Perhaps the most stable in the world, Canada's tightly regulated banking system has weathered two world wars, the Great Depression, 1970s inflation, the 2008 financial crisis and the Covid-19 market crash – all while maintaining consistent dividend payouts, unlike the US or UK.
Its resource endowment is a lottery win of geography and geology. The country is a top five global energy producer sitting atop an estimated $1.7trn of natural resource wealth spanning uranium, oil, gas, potash, gold, copper and timber. With the US having virtually no potash of its own, American harvests depend on Canadian fertiliser, while the Athabasca Basin holds some of the world's richest uranium grades just as the nuclear renaissance gathers pace. Such assets are driven by commodity prices and cash flows rather than distant earnings estimates, with little risk of obsolescence.
The second is political stability. Abundance in the ground is common, but abundance paired with the rule of law, an independent central bank and alignment with the West is rare and getting rarer. As Washington turns inward and populist noise rises across the developed world, Canada's calmer politics offer exposure to the decade's defining themes without the geopolitical risk premium that can accompany them.
The third is simply the price you pay. The market may be famous for its banks and miners but beneath the surface hide world-leading companies comparable to their US counterparts, flying under the radar at more attractive valuations.
Celestica makes the high-speed hardware expanding global data centres and sits squarely in the AI supply chain – its AI-related sales surged 80% last quarter, giving investors all the disruption of Silicon Valley at a Canadian discount. Similarly, Aecon, the leading contractor for Canada's nuclear reactor fleet, carries a record C$10.7bn backlog into a national infrastructure boom, yet is priced well below US grid and data-centre builders.
Look across then to MDA Space. The five-decade incumbent behind the Canadarm, the iconic robotic arm used on NASA's Space Shuttle for 30 years to manoeuvre, deploy or capture payloads, is doubling its satellite capacity against a C$3.7bn backlog. This equates to two times its annual revenues and the business is profitable. Set that against SpaceX's interstellar IPO, which came at some 130x revenues despite a near $5bn loss in 2025.
The friction next door
Of course, good portfolio companions don't always make easy neighbours, and Canada's relationship with the US is the biggest test of that. This escalated this week as Washington moved to impose an additional 50% tariff on a range of Canadian goods, covering some $20bn of exports and taking effect within 30 days, in response to what it calls discriminatory Canadian trade practices. Potash, critical minerals and the great majority of energy exports remain untouched, while the pain, for now, is concentrated in autos and consumer goods.
Canada is not without leverage of its own. Its dollar-for-dollar response to US steel and aluminium tariffs in 2018 helped bring those tariffs down within a year, and more recent provincial measures have already shown real teeth. The two economies also remain deeply interwoven – the average car part crosses the border seven times before final assembly – giving both sides reason to avoid disrupting a well-oiled machine.
Held together, the US and Canada come close to a complete equity package: the growth engine of the age and its natural counterbalance. The rocket may well reach orbit, and investors should hope it does, but every mission still needs a ground crew. For portfolios straining under the weight of a single trade, that ballast is waiting just north of the border.
Greg Eckel is portfolio manager of Canadian General Investments. The views expressed above should not be taken as investment advice.