There is no real benefit to investing in Canada’s global leaders, said a State Street investment executive today in Toronto.

Investors are better to seek out and identify potential takeover targets, which are a “real homerun, if you’ve got that stock,” said Peter Lindley, head of investments at State Street Global Advisors Canada.

The so-called “hollowing out” of corporate Canada has been a hotly debated topic in recent years, as foreign firms have bought up iconic Canadian companies such as Inco, Falconbridge, Alcan and Hudson’s Bay Co.

But speaking in Toronto today, Lindley said the term “hollowing out” is a “prejudicial phrase” that tries to create an impression that Canadian companies are being stolen. He said foreign acquisitions of local firms bring welcome assets, money and expertise into the country.

“The last thing you want to do is increase protectionism. If anything, you’d want to decrease it,” he said. He lamented the lack of competition in banking and telecommunications and said a multi-staged approach to decreasing regulation would be best in the long run, despite “painful teething problems” that are inevitable.

A recent Conference Board of Canada report concluded that the Canadian government should steer clear of any further protectionist legislation. The report, released in January, attempted to put fears of hollowing out to rest. “Mergers and acquisitions are a positive part of the process of competition for capital and corporate control,” said Anne Golden, president and CEO of the Conference Board, about the study’s results. “Instead of attempting to create global corporate ‘champions’, the federal government should continue to concentrate on establishing conditions for all Canadian companies to prosper, and consider relaxing foreign ownership and operational restrictions in protected sectors.”

Financial services is a perfect example of a sector in which relaxed restrictions would be a boon, according to James Milway, executive director of the Institute for Competitiveness & Prosperity. “None of our banks are global innovators,” he said, during a panel discussion today. “It’s not impossible to believe that if we open it up and forced our banks out on the world scene that one or two of them might become true global leaders.” Milway points to global banks such as ING and Royal Bank of Scotland, which grew out of small countries. But, he added, it’s equally as possible that Canadian banks will not survive such move.

Still, de-regulation has its detractors. In 2006, foreign direct investment (FDI) was up 10.1%, to $448.9 billion, the country’s biggest gain in six years. And executives such as Manulife Financial CEO Dominic D‚Alessandro and Royal Bank of Canada CEO Gord Nixon have been vocal in their concern for the future of corporate Canada.

The Institute for Competitiveness & Prosperity (ICAP) has compiled a list of Canada’s global leaders as defined by internal IPAC criteria, including having $100 million in revenue and being among the top five globally in a particular industry and tracked changes to that list since 1985. More recently, State Street Global Advisors worked with the institute to track the market performance of these companies. “We ought to recognize that we’re growing as many, in fact more, than we’re losing,” said Milroy. “We also should not worry so much about losing those companies whose management teams are no longer up to the task.”

The research showed no financial benefit to investing in the Canadian “champions”. Milroy says the topic warrants further research into other metrics of success, such as employment and growth rates to determine the real value of Canada’s leading firms. “I can’t yet say for certain that these companies are super-critical for Canada’s economic success,” he says.