Should you invest in Canada or the United States? In this Wealthion interview, RockLinc Investment Partners CEO Jonathan Wellum explains the critical differences between the two markets and where investors can still find overlooked opportunities in Canada. The U.S. dominates with unmatched size, liquidity, and technology leadership, while Canada remains concentrated in energy, resources, and banks. This creates very different risk/return profiles for investors.
Jonathan covers:
- Why the U.S. market is deeper, more diversified, and a global growth engine.
- Canada’s heavy reliance on commodities, and why this makes returns more cyclical.
- The impact of currency swings (CAD vs. USD) on cross-border returns.
- Tax considerations for Canadians buying U.S. stocks (and vice versa).
- Why U.S. markets have outperformed for decades — and whether that will continue.
- Hidden Canadian gems like Cameco, Franco-Nevada, and Wheaton Precious Metals, and global firms like Brookfield and Constellation Software.
- How Wellum allocates today: ~65% U.S., ~35% Canada & Europe.
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Jonathan Wellum 0:01
If you look at the market cap of the US, US markets, it’s, you know, something like $50 trillion compared to Canada at about two and a half trillion dollars. So those are massive differences. So you think about the opportunities, the opportunity set in the United States,
James Connor 0:22
you Jonathan, thank you very much for joining us today. You and your team are based in Canada, but you invest in both Canadian and US stocks, and I thought it would be a good idea to sit down with you and spend some time discussing the differences between investing in Canadian stocks versus US stocks, and what the different elements are when it comes into making a investment decision. And I always like to begin with a top down view, so I want to first touch on the Canadian economy versus the US economy, and the differences between the two, and how these differences come into the decision making process.
Jonathan Wellum 0:58
Yes, well, from, from our from our perspective as Canadians, you know, when you’re next to the largest, most dynamic economy in the world, you’re constantly looking south for Americans who are find themselves in the world’s, you know, largest, most dynamic economy in the world, and they looking up to Canada often. You know, don’t spend much time looking at Canada, but from from a Canadian perspective, we spend much more time in the United States market than even the Canadian market, and that’s largely because the US market is probably 1518, times larger than the Canadian market. So if you look at the market cap of the US, US markets, it’s, you know, something like $50 trillion compared to Canada at about two and a half trillion dollars. So those are massive differences. And so when you think about just the market size, it’s just such a large difference. And so you think about the opportunities, the opportunity set in the United States is going to be much larger. And then when you think of liquidity, I mean the liquidity in the United States, again, is multiples, multiples, better liquidity than in Canada. And then when you start to bear down, we’ll talk about this. There’s much difference in terms of sectors. And sector weights are quite different between the United States and Canada, because Canada still remains quite a resource focused economy. And so there’s a couple large sectors in Canada that really dominate the you know, the Toronto Stock market, the TSX, as they call it, and and so you’re it’s much more focused and much more concentrated in Canada. So yeah, we, as in Canadian investors, we look a lot to the US and have big investments in the US. And we love some of our Canadian companies too, and certainly encourage our American the American viewers here on wealthion to come north. We’ve got some great businesses in some of the resource sectors. And of course, they know some of our great business, like constellation, software, Shopify, those are a couple of big names that are Canadian names that are fairly large in the states also. And
James Connor 2:53
you did touch on the fact that Canada is a resource rich nation, and a large part of our GDP, I believe it’s around 30% is export driven. So we’re an export driven a company. But maybe you can just speak to the resources, the importance of the resources to this economy, and how that’s different from the US. Yeah,
Jonathan Wellum 3:11
when you look at the, say, if you look at the the s, p, t, s, x, which is our big Toronto Stock Market in in Toronto, about 17, 18% of that market is energy, and then you’ve got another 13% or so would be materials. That’s everything from potash to gold, silver, precious metals and so forth. So you’ve got over 30% of our Toronto market just in energy and in materials alone. And that’s a large, large weighting versus the US, where those, those sectors would be much, much smaller. So when you think of this, the importance on our Toronto market, those are huge sectors. The other big one that Americans, you know, you know, should know about would be, course, our financial sector. So we have these, you know, massive banks in Canada, and they take up about 31 32% of the TSX. So between the materials, energy and financials, you’re talking well over, you know, you’re getting close to two thirds of our market. So that’s, that’s the kind of concentration you get worse in the and you think about health care, for example, we have about point 4% of our market in health care, point for less than 1% in the US, it’s like 11% and so there’s and, you know, materials in the US, you know, SP is only less than 2% and ours, as they say, is, is like 13% so yeah. So there’s big differences in sectors. Canada is a resource rich country, large reserves in uranium, oil, gas, potash, copper, gold, silver, all of these resources, timber, hydroelectric energy and big energy producer also, and those are really dominant areas, much smaller in manufacturing, our industrial base, although we’ve got some good industrial companies, is just a fraction of what you’d see in the United States. Also.
Maggie Lake 5:00
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James Connor 5:38
And one of the big advantages of the US market is its technology and innovation, like no other country in the world comes close to the the US and what they’ve achieved with some of these companies like Microsoft or Apple or meta or Nvidia. But maybe you can just speak to that and the importance of the tech sector in the US, and why you, as a Canadian investor, has to be there? Yeah.
Jonathan Wellum 6:04
I mean, interestingly enough. I mean, Canada does originate tech companies, and we’ve been known for that in the Ottawa area, also the Waterloo area. Waterloo is known by a lot of Americans, University of Waterloo, and that’s where rim Research In Motion came out of and so on. But it doesn’t take long for those companies. If you’ve got really bright people coming up with these ideas there, they either gravitate to the states where the capital is, or they get bought out pretty soon. And so yeah, what happens is, it’s very difficult to compete against the United States in terms of technology. In those industries, which, you know, require capital. They require, you know, very dynamic individuals, private private equity, venture capital, angel investors. And in Canada, yeah, we have some of that, but again, it lags so far behind the US. And so what’s happened is the US has become by far the dominant player in technology. And as we know it’s technological improvements. Now we’ve got aI that’s really driving a lot of the markets, driving productivity gains. And so that’s a very, very small sector in Canada. And what you find that, even if we have Canadian based companies like constellation software and so forth, I mean, most of their acquisitions, of course, are in the United States. So they might be Canadian based, but they’re large, large players in the United States, and same thing with Shopify. So yeah, we’re just a very small market. And I think the US, this is really a major advantage for the US vis a vis Canada and Europe and the rest of the world. And that’s their technology sector. It is an amazing sector, and it’s very hard to compete against them. I think again, going forward, they’re keeping the cost of capital down. The current Trump administration is encouraging more technological innovation, less regulations, and that’s just going to feed that sector even more, I think, in the United States.
James Connor 7:53
And so that’s a good overview of the economy and why, and the difference between the two economies. But you touched on this earlier, and I want to talk about the the actual stock markets. Now, it doesn’t matter if matter if it’s the s, p or the New York Stock Exchange, the Toronto Stock Exchange. What are the big advantages that the US has, that Canada does not has? It is the size and the liquidity. And this is why individuals, like you, money professional money managers, you got to go to the US for that size and liquidity. And you touched on this the the market cap of all the stocks in the US. It’s around $50 trillion versus 4.5 versus 4.5 trillion for the Canadian stock market. So it’s significantly smaller. And I mean, there’s some companies in the US that have market caps larger than the all the stocks on the Toronto Stock Exchange, but maybe you can just talk about that and the importance of having this liquidity. Yeah, I think that 4.5 trillion
Jonathan Wellum 8:47
is actually a Canadian dollar number. So if you, if you actually divide that by 1.36 you get down even smaller. Yeah. And so the in the US market is just so deep and in liquid. And liquid. And what’s also interesting is many of our Canadian companies, if they want to get more liquidity, they will then inter list, so they might be listed in Toronto, but they’ll also list in the United States, and that’s what we see happening. So a lot of times, we can buy our Canadian based companies that are doing a lot of business around the world, including the US will buy them in the United States in US dollars. And that’s that’s just the reality, given the size difference so and the US market, as we know on a valuation basis, in terms of its the total value of the stocks traded and the equity markets dwarfs every other market in the world. And so Canada is no exception there. And again, I don’t see that changing anytime soon.
James Connor 9:43
So something else I want to discuss this is very important. When you invest in different countries, and if you’re a Canadian investor, and you invest in the US or Europe, it doesn’t matter where you got to be very concerned about the foreign exchange. So I’m just going to throw out some rough numbers if I’m a Canadian. Canadian investor, and I have my money in the S P, and the S P is up 10% on the year, but the Canadian dollar is up 10% versus the USD. That means my money is more or less flat, okay? And of course, if the Canadian dollar keeps going up against the US dollar, it can cost me a lot of performance. So maybe you can just speak to the importance of currency and foreign exchange.
Jonathan Wellum 10:23
Yeah, this is, this is a big issue for for investors in different markets, the currency move. So in Canada, we generally don’t worry too much if we’re investing in the US, because it’s, you know, you get the US, dollar reserve currency and so forth, but it will swing your rates around dramatically. So if you’re in the US and you’re buying into Canada, then you you know, in some cases, you’ll hedge that risk because you’re concerned about the currency risk. The Canadian Dollar can move around a lot. And so just a couple of examples, that’s that’s because it’s seen as a resource currency. And so you know, if you if it’s a commodity type currency, and you’re going into recession, then typically they’ll sell down the dollar. But if you think about this, since in the last you know, 2030, years, our dollar has gone all the way down to at its low 6162 cents, back in the 1990s to the US dollar, up to $1 $5.06 above the US dollar, several times going back in the last 1516, years. And so those are major, major swings that you have to factor in to your analysis when you’re looking at the marketplace. So if you’re going in and the Canadian dollar is really quite low, again, assuming there’ll be some rational policies back in Canada, our dollar could rise quite a bit. And yeah, you would that would be a good opportunity for American investors, if our dollar is going up on the conversely, if things are rip roaring and our dollar is quite high, and you’re investing in our resource sector, expecting to get some great returns, and then we go into a slowdown, you could see our dollar drop quite a bit. And so these swings, you can get 30, 40% swings, literally in currency between Canada and the United States. And so that’s something that investors need to be aware of, but there’s ways that it can hedge that. If that’s a concern, we typically look at buying companies that make money all around the world, and typically what happens is the currency changes get embedded in the stock prices, and it tends to sort of wash out over extended periods of time. But if you’re a short term investor, currency moves are going to be very important to you, absolutely important.
James Connor 12:24
And in addition to being aware of what’s happening with the currency, you also got to be aware of tax implications of both Canada and the US. Maybe you can touch on that. Yeah.
Jonathan Wellum 12:33
I mean, right now, we have reasonably sane tax policies in terms of owning each other’s stocks. So there’s a 15% generally is a 15% withholding on dividends, and that’s something that’s worked out with our tax treaties. So if you’re buying Canadian stocks, it’s not going to be too injurious to Americans and vice versa if Canadians are buying US stocks. So there’s that withholding tax, which is relatively small on dividends. And so that’s something that has been a good policy. It’s made it easier, easy to cross border. Shop when it comes to buying securities. There wasn’t that big, beautiful bill that Trump had before us. There was some talk about increasing the taxation on us investments. That was dropped, thankfully. So that’s good. The other factor would just be capital gains taxes. People should be aware of that, but that would Americans will have their own set of capital gains taxes. We have our own set here, and generally, ours are, you know, 50% of the capital gain is taxed at your at your marginal tax rate in the US, as they know it varies based upon time horizon, how long you’ve owned the security and then in your tax bracket. So the tax policies at this point, if you’re buying each other stocks, if you know Keynes, you’re buying us and us are buying Canadians are generally pretty, pretty smooth and pretty clean because of tax treaties between the countries, which is nice. If
Maggie Lake 13:52
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James Connor 14:10
let’s discuss the performance and the historical returns of both markets. And we touched on this earlier, but one of the big advantages of the US is is this tech industry. It’s just a machine in terms of creating cash flow and valuations. But can you discuss or provide us some context as the can you provide some context as to what’s been happening with both markets in the last 10 or 20 years? Yeah, now if
Jonathan Wellum 14:36
you think about the Canadian market, what we’ve said is it’s much more resource focused, and resources and commodities really are much more cyclical, and so it’s makes sense over and have lower cost, lower returns overall, generally speaking, into the whole business cycle, because they’re capital intense, and there’s more risk when you’re digging holes and trying to find resources and so on, and yet getting return on it, it’s riskier. Yeah. So it makes it only follows that on the Toronto market, our returns are generally three to 4% if not sometimes more less on an annual compound rate of return. So you know, the TSX over the last number of years has been growing at seven, eight, you know, six, 7% maybe slightly higher, versus the s, p, which has been double digit, low double digits, so there’s significant change in performance. But again, investors would understand that’s because our sectors are so much different. We don’t have those high power tech companies, even some biotech companies, manufacturing industrial companies in the US, some of them are very dynamic and integrating technology into their businesses. We just don’t have the depth and breadth in Canada, those kind of companies where you get these high, high returns on invested capital that you can see in some industrials and some manufacturers, the tech businesses, our business are much more capital intense, and overall now our banks have done quite well, and so they skew up the numbers on the TSX. If you were to pull the banks out, it would probably be even more abysmal in terms of our return. So yeah, the returns are substantially different. And again, that’s why a lot of investors in the States, Americans say, Well, why bother going to Canada? We can basically get our exposure to what we want here in the United States. And I would say that’s largely true. But we also have, we have some gems up in Canada and in some interesting valuations where you can buy equally, you know, some, some great quality companies at lower multiples and still with good growth rates. So don’t, don’t neglect Canada. And even though you’re hearing sometimes bad headlines about the country and some of the direction, that doesn’t mean some of the businesses that can’t do well and aren’t doing well. And so encourage people to, you know, to search, to look, to ferret out opportunities, especially in our energy patch, some of our great resource companies, they’re doing quite well and making lots of money.
James Connor 16:48
So Jonathan, before we wrap up, I want you to summarize a lot of the points you made, because from an investment point of view. So you deal with Canadian clients, and having said everything that we’ve just discussed. How does this all come into play? As a value investor? How do you allocate money between Canada versus the US?
Jonathan Wellum 17:08
Yeah, it’s a great it’s a great question. We know the Canadian market well, and so what we try to do is ferret out what we believe are some of the best companies trading at attractive valuations in Canada, and then put them up against our American counterparts. And so we want to, we don’t want to be buying companies that are second rate just because they’re Canadian companies, but we put them up against our Canadian or US counterparts. And so, and then we compare them. We compare the valuation. So some of our Canadian companies, if you think about the leading royalty companies in the gold, silver space, like wheat and precious metals, Franco, Nevada, those are Canadian companies. Sandstorm used, you know, is, but they’ve been bought out by Royal Gold. That’s going south of the border. That’s, that’s what’s happening to more and more of our companies. If you think of Cameco and you want to get exposure to nuclear, I mean, Cameco is one of the best companies in the world in terms of supplies of uranium and decades and decades of uranium. So we’ll look at the different industries, and we’ll just put our Canadian companies up and say, if they can stack up against the US and compete against them, then we’re going to buy the Canadian companies all day long. And we do have some great companies. The Brookfield companies have been great companies, leaders in terms of their business. And so, yeah, as I mentioned, we don’t own Shopify, but Shopify has been interesting business constellation software has been a bang up business for I mean, it’s been one of the best performing companies on the TSX. I think in the last 20 years, by far, it’s been extraordinary. So we’ll look at the Canadian companies and line them up and then buy them based upon valuations and opportunities. Same thing with the oil and gas sector. But we’ll try not to overlook the Canadian companies. We will screen through them all, because in our view, they’re probably trading at better valuations because they’re not picked up in all these big indexes where all the passive money is just flowing in and, you know, picking up these companies. So you can find some overlooked, under loved companies in Canada, and if they can compare, we’ll buy them. Otherwise we buy the US leader.
James Connor 19:04
And typically, what percent of your overall assets would be invested in the US versus Canada?
Jonathan Wellum 19:11
Yeah, currently we would have of our equities. We probably have about 60. 65% would be US centric companies, and then the rest would be largely Canadian and a couple European companies. So yeah, it’s, it’s hard to avoid the US, but it is a, it is a incredible market, and I think it’ll, it’s going to continue to be a world leader, just simply because of the dynamism in that country and tax policies and incentives there. So that’s really the way the ratio breaks out, but that’s breaks out based upon quality and valuation of the companies that we find.
James Connor 19:46
Well, Jonathan, this has been a great discussion, and I want to thank you very much for spending time with us today and sharing your thoughts on how you make a investment decision between investing in Canada versus the US. If somebody would like to learn more about you and your firm. Rock link Investment Partners, where can they go
Jonathan Wellum 20:02
sure our website is the easiest way to track us down. So that’s just rock link.com, roc, K, L, I, N, C, rock link with a C and info@rocklink.com will will track us down and and so we’d love to hear from you. And anyway, we can work with different Canadian investors. We’d love to do that. Come by, we’ll give you a free, free assessment and and tell you how how we would approach the investment process with you. Jonathan,
James Connor 20:27
once again, thank you. Thank you very much. Jimmy.
