S&P 500 Hits a New High While the TSX Lingers Below Its August Peak: How Much Is Home Bias Costing Your Portfolio?

The S&P 500 just hit a record while the TSX sits 3.5% below its August peak. Here’s what home bias really costs Canadians, and 3 ETFs that can lower it now

Key Points
  • The S&P 500 is within 0.1% of its record high. The S&P/TSX Composite is still about 3.5% below its Aug. 25 peak.
  • Home bias hasn't hurt returns lately, but the real risk is concentration risk.
  • Vanguard's research points to a 30% Canadian, 70% global stock mix. On a $100,000 portfolio that is 50% Canadian today, that means moving $20,000.

Picture a Toronto investor opening her account in October. She sees the S&P 500 closed at a fresh record high, while the TSX index is still below its all-time high last recorded in August.

This performance gap is even more significant over the last decade. Since October 2016, the S&P 500 has returned 327% to shareholders, higher than the Canadian flagship index’s 230% gain.

Canada day banner background design of flag

Source: Getty Images

Has home bias hurt Canadian investors’ returns?

The TSX rose 28% in 2025, reporting its best year since 2009. Using BlackRock’s calendar year returns, the iShares Core S&P/TSX Capped Composite ETF (TSX: XIC) beat the iShares Core MSCI All Country World ex Canada Index ETF (TSX: XAW) in three of the last five years.

Over this period, XIC returned 110%, while XAW rose 81%. The ongoing rally in TSX stocks was driven primarily by big banks and miners. While the TSX has trailed equity returns south of the border, it has outpaced most other international markets in the last decade.

According to MSCI data, Canada is 3.1% of the MSCI All Country World Index, while the U.S. accounts for almost 64% of the global fund.

A Vanguard research report states that Canadians have 50% exposure to the domestic market, down from 67% in 2012. Vanguard found Canadians cut their home bias faster than investors in Australia, Japan or the United States. But 50% is still a big number.

Why do so many investors stay close to home? A Vanguard portfolio consultant and product specialist who co-wrote the report points to two reasons.

Investors feel familiar with Canadian companies. Canadian stocks also tend to pay higher dividends, making them attractive to income-seeking investors and retirees.

The analyst says heavy exposure to energy, financials and natural resources, with less in technology and healthcare, could have lowered risk-adjusted returns. It also leaves portfolios more exposed to geopolitical shocks.

Financials make up 37% of the index, the highest weight in eight years, according to LSEG data cited by Reuters. In March, it was 31%.

Vanguard argues for a 30% Canadian and 70% global split. Its researchers call that the smoothest weight across conservative-to-aggressive risk levels.

Which ETFs can Canadians use to lower home bias?

Three TSX-listed ETFs can offer Canadian investors the diversification they need.

  • XAW, the one-ticket fix: It holds stocks not listed in Canada, with 8,168 holdings as of August 14. The management expense ratio is 0.22%, per BlackRock. Note that U.S. stocks are still about 65% of the matching MSCI index.
  • Vanguard S&P 500 Index ETF (TSX: VFV): The U.S. core with an MER of just 0.08%.
  • Vanguard FTSE Developed All Cap ex North America Index ETF (TSX: VIU): It owns more than 3,600 companies, with Japan accounting for 24% of the index weight.

For a simple plan, XAW does the most to shrink home bias. A hands-on investor could pair VFV with VIU instead. To keep some Canada exposure, include the Vanguard FTSE Canada All Cap Index ETF (TSX: VCN), which holds about 212 companies for a 0.05% MER.

Notably, dividends paid by international companies in a Canadian-listed ETF can still face withholding tax, even in a TFSA.

Bottom line: Is it time to cut your home bias?

Home bias has not hurt Canadian returns lately. But 50% of your stocks in a market that is 3% of the world, with 37% of it in financials, is a concentration bet.

Moving toward Vanguard’s 30% guide, a low-cost fund like XAW manages that risk.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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