Markets
Why Canadian investors need exposure to international markets
By Sherwin Pasha, CFA 20 October 2025 4 min read
Key takeaways:
- Canada's home market is concentrated: The S&P/TSX Composite is heavily weighted in just three sectors: Financials, Energy, and Materials, which ties a portfolio's performance closely to commodity prices and the domestic banking sector.
- International markets offer different economic engines: European indexes like Germany's DAX and the UK's FTSE 100 provide access to industries underrepresented in Canada, such as global Industrials (DAX) and defensive sectors like Consumer Staples and Health Care (FTSE 100).
- True diversification builds resilience: By blending these different sector exposures, investors can create a more balanced and resilient portfolio that is better positioned to capture growth from various parts of the global economy, regardless of which industry is leading at any given time.
As a Canadian investor, your portfolio likely has a solid foundation built upon the S&P/TSX Composite index. It’s a familiar and powerful engine of wealth. But have you ever wondered what different kinds of opportunities lie across the Atlantic and how they could complement your existing investments? Let's look at Europe's two largest economies: Germany and the United Kingdom. Exploring their markets reveals not just different countries, but fundamentally different economic engines that can help build a more resilient portfolio.
Index performance
A look at 2025 performance shows not only how different these markets are, but how their individual stories can evolve throughout the year. While Germany’s DAX currently leads with a year-to-date gain of 21.76%, our own S&P/TSX Composite has mounted a strong rally to reach 20.72%, significantly narrowing a performance gap that was much wider just a few months ago. The UK's FTSE 100 has delivered a 15.35% return over the same period. This highlights a key question for investors: what causes these divergences, and why do they change over time? The answer, as we'll discover, is in the unique sector DNA of each index.
Year-to-date performance of the S&P/TSX Composite, DAX and FTSE 100 indexes
Source: MarketWatch
This chart shows the variation in YTD returns of the S&P/TSX Composite, DAX, and FTSE 100 indexes. Performance data is as of the close of October 10, 2025.
A closer look at sector composition
To see how these indexes are built, we'll look at their sector composition using the Global Industry Classification Standard (GICS), the framework trusted by financial professionals worldwide for a consistent comparison. Let's start with our home base. The S&P/TSX Composite is built on the strength of Canada’s banking and resource companies, though this makes it heavily concentrated. The Financials sector makes up nearly a third of the index (about 32%), while Energy and Materials together account for another 31%. This structure has served investors well, but it also ties our fortunes closely to commodity prices and the health of the domestic banking sector.
Index sector breakdowns
Now, let's look at Germany. The DAX reflects the country's industrial and manufacturing economy, with its Industrials sector making up 33% of the index. This heavy weighting in global industrial companies is a key reason for its strong performance this year. By investing in the DAX, you gain a much deeper concentration in the Industrials sector, which represents a third of the German index compared to about 11% in Canada. This provides more than just a heavier weighting. It offers access to a different type of industrial economy, dominated by global manufacturing leaders whose growth is driven by forces distinct from Canada's own industrial leaders. For example, the DAX is tilted toward companies such as Siemens (engineering) and Airbus (aerospace), whose growth is tied to international export markets. The TSX, in contrast, is weighted towards North American service and logistics leaders, such as railways like Canadian Pacific Kansas City and Canadian National Railway. In short, this provides investors diversification opportunities from some of Canada's dominant sectors and adds a differentiated return profile to their portfolio.
The UK’s FTSE 100, in contrast, offers a more balanced, defensive blend. What stands out are its significant holdings in global Consumer Staples (17%) and Health Care (13%), two sectors that barely register in the S&P/TSX Composite. These companies, which produce everyday necessities and life-saving medicines, tend to be less sensitive to economic cycles, offering a potential source of stability during uncertain times.
Conclusion
This brings us to the power of diversification. Investing internationally isn't just about changing the flag on your portfolio—it's about accessing entirely different economic stories. When you add exposure to the DAX, you’re investing in the global industrial cycle. With the FTSE 100, you’re accessing world-leading consumer and health care giants.
This approach reinforces one of the most trusted principles of investing: it’s about time in the market, not timing the market. No one can say with certainty whether Canadian resources, German industrials, or UK staples will lead next year. By holding a thoughtful mix, you are positioned to capture growth wherever it occurs, smoothing your investment journey and reducing reliance on any single sector or economy.
By looking beyond our borders, we don't just spread risk, we unlock new avenues for growth and stability. Building a truly resilient financial future starts with a global perspective.
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