How to Allocate Between Canada and US Equities

How to Allocate Between Canada and US Equities Starts With Market Structure

Deciding how to allocate between Canada and US equities is often treated as a home-country-versus-abroad question. It is really a market-structure question. The two markets are built from different sector weights, and that difference drives most of the return gap between them over time.

Canadian and US equity indexes look nothing alike under the surface. Understanding why matters more than picking a round-number split like 70/30 or 60/40.

Why Canadian and US Markets Behave So Differently

The S&P/TSX Composite is concentrated in a small number of sectors. As of a May 2026 fact sheet for a fund tracking the index, financials made up roughly 31% of the index, materials about 19%, and energy around 18%, putting the top three sectors near 69% of total weight. That concentration means the TSX's performance is closely tied to bank earnings and commodity prices such as oil, gold, and copper.

The US market is concentrated too, just in different places. Heading into 2026, a handful of mega-cap technology and AI-related names accounted for an outsized share of US market valuation, with technology sector allocation near its highest level since index inception. An experienced equity trader can use this as a starting checkpoint: before selecting an industry to overweight, check which country's index already carries that industry's concentration risk.

The Home Bias Trade-Off

Canadian investors get real, practical benefits from holding Canadian equities: returns and dividends arrive in Canadian dollars with no currency conversion cost, and eligible dividends from Canadian corporations receive preferential tax treatment in non-registered accounts. Those are legitimate reasons to hold some Canadian exposure, separate from any return forecast.

The trade-off is diversification. Fund flow data shows this tension playing out. One long-running global equity strategy saw its US equity allocation climb from under 50% to over 70% of assets between its 2009 launch and the end of 2025, a shift driven by the relative strength of US large-cap companies. A trader building a portfolio can treat that kind of allocation drift as data, not just a house view.

What 2026 Conditions Suggest About Balance

Two things are true about the current environment. First, US equity concentration is a stated risk, not a fringe concern. Schwab's own research flagged higher concentration risk as one of the key factors likely to affect global equity markets through the second half of 2026. Second, international and Canadian equities have looked comparatively better valued. Schwab noted heading into 2026 that international stocks appeared attractively valued relative to the S&P 500, with earnings and economic growth expected to accelerate, and separately projected US large-cap equities to return roughly 5.9% annualized over the next decade, a modest long-run figure by historical standards.

None of this argues for abandoning US exposure. Morningstar's own 2026 outlook still recommended that investors hold equities at their targeted allocation, using a barbell approach that keeps exposure to technology and AI upside while balancing it with higher-quality value names. The point for a Canada/US split is narrower: know which market is carrying which concentration risk before deciding the weights.

Applying Market → Industry → Stock to the Allocation Decision

ImGeld's framework starts with the market, then narrows to industry, then to stock. A Canada-versus-US allocation decision is that same framework applied one level up. Choosing country weight is choosing which sector concentrations, financials and resources on one side, technology on the other, will dominate a portfolio's risk before a single stock is picked. A trader who skips this step and jumps straight to stock selection is often unknowingly doubling down on a concentration they already carry through their country weighting. Reviewing Industry Strength and Relative Strength readings separately for each market, rather than blending them into one global view, keeps that risk visible.

Key Takeaway

• The TSX is concentrated in financials, materials, and energy; the US market is concentrated in technology and AI-related names, and each carries a different kind of commodity or valuation sensitivity.
• Home-country holdings offer currency match and dividend tax advantages, but they are not a substitute for diversification.
• Heading into the second half of 2026, elevated US concentration risk and comparatively attractive international valuations were both cited as reasons to keep allocation deliberate rather than automatic.
• Treat country weighting as the first decision in the Market → Industry → Stock sequence, not an afterthought to stock picking.

Conclusion

There is no single correct percentage split for how to allocate between Canada and US equities. There is a correct process: understand what each market is structurally exposed to, weigh the currency and tax benefits of home-country holdings against the cost of concentration, and treat the country decision as the top layer of the Market → Industry → Stock framework rather than something decided by habit.

FAQ

What is a typical Canada-US equity allocation for Canadian investors?
There is no single standard; global equity funds available to Canadian investors have shown US weightings ranging from roughly 50% to over 70% depending on strategy and time period, reflecting differing views on diversification versus US market strength.

Is it risky to hold only Canadian equities?
Yes, from a diversification standpoint, since financials, materials, and energy together make up close to 69% of the S&P/TSX Composite, leaving a portfolio exposed to bank earnings and commodity price swings.

Is the US stock market too concentrated in technology right now?
Concentration in a small number of large technology and AI-related names was a specifically cited risk factor for US equities heading through 2026, though this does not by itself mean avoiding the sector.

Why do Canadian investors keep some domestic equity exposure despite the diversification cost?
Canadian dividends can receive preferential tax treatment in non-registered accounts, and Canadian-dollar returns avoid currency conversion costs, both practical benefits separate from expected return.

Should I rebalance between Canada and US equities based on short-term news?
No; country weighting is a structural decision about sector concentration and diversification, not something to adjust around single data points or short-term headlines.

Does a barbell approach work for a Canada-US split, not just within US sectors?
The same logic can apply: balancing exposure to higher-growth, higher-concentration areas like US technology with more diversified or value-oriented exposure, such as Canadian financials, can manage risk without abandoning either market.