As Canadians, we are used to a stock market heavy with mines and oils. It reflects economic life in the great snowy north. The picture is different in the world economy, however, where other industries generate more economic clout.

But if you select investments based only on what trades in Canada, you’ll get an unbalanced portfolio in terms of what goes on globally.

The energy and commodities boom has exaggerated this imbalance. The two resources sectors — energy and materials — account for 41.5% of the Canadian market, but less than 15% of the world market.

Five years ago, before the energy and commodities boom, energy and materials together made up 29% of the Canadian market. In this period, most other basic sectors of the Canadian economy contracted in relative importance.

Compared with the global stock market, Canada’s energy sector is almost three times the norm. The materials sector is more than twice the global weighting (see table).

On the negative side, six sectors are seriously underweight compared with the world market — consumer discretionary, consumer staples, health care, industrials, information technology and utilities.

This imbalance provides strong reason for Canadian investors to diversify internationally into industries that are poorly represented within Canada.

The measure used here for the global stock market is Standard & Poor’s global 1200 index. It consists of Standard & Poor’s 500 composite index (representing the U.S.), the S&P/TSX 60 index (the corresponding Canadian index) and 27 other similar national indices from around the world. These, of course, are large-capitalization indices.

In the global index, the U.S. accounts for 48% of the weighting and Canada 3%, ranking seventh in size.

These sectors illustrate the paucity of choice in Canada:

> Health-care stocks make up 9% of the world stock market and less than 1% of Canada’s.

Five years ago, the health-care sector included 22 companies in TSX indices, from large-cap to small-cap. Now it has nine. There are only two new securities on the current list: Neurochem Inc. and an income trust, CML Health Income Fund.

Only two companies on the list — Biovail Corp. and MDS Inc. — make it into the global index health-care sector.

Missing from Canada’s health-care sector are industries such as major pharmaceutical manufacturers and makers of health-care equipment.

A Canadian investor seeking to diversify abroad will find 78 non-Canadian health-care stocks in the S&P global index.

> Utilities form 4.6% of the world market, and 0.5% in Canada. Mind you, the S&P/TSX 60 index includes both Enbridge Inc. and TransCanada Pipelines, but they are excluded from both the utility sector indices (of which they were a part in 2002) and the pipeline category within the energy sector indices.

Except for the loss through the U.S. takeover of the former B.C. Gas (later called Terasen Inc.), the lineup of large utilities has not changed.

Worldwide, the large-cap S&P global index has 71 utility stocks. These include Duke Energy Corp., which acquired the former Westcoast Energy Inc. The global lineup includes companies as varied as Copel of Brazil and Suez SA of France.

> Consumer staples. This sector provides 2% of the Canadian market but more than four times that weight worldwide. Of the 96 global index stocks in this category, only four are Canadian — Loblaw Cos. and its parent George Weston Ltd., Shoppers Drug Mart Corp. and Cott Corp.

Change in this sector in Canada has been slight. Five years ago, the TSX had 16 consumer staples index stocks; now it has 14.

Four of the smallest companies in 2002 have disappeared.

The 92 consumer staples companies outside Canada in the global large-cap index offer many choices for diversification. Names include Archer Daniels Midland Co. in the U.S., Distribuidora y Servicios SA of Chile and Nestlé SA of Switzerland.

As for overweighting in the Canadian market, the global index’s 67 energy stocks include 12 Canadian companies. Of the 116 global index materials sector companies, 14 are Canadian.

Financial stocks are the largest sector worldwide. The Canadian market’s representation has grown from an overweight 33% five years ago to 35.5% currently. This is a third larger than the world market’s financial sector.

The main reason for diversifying outside Canada for a financial stock is valuation. Canadian banks, for example, carry higher valuations than U.S. banks. IE