Canadian asset owners are increasingly evaluating allocations to the U.S. amid currency volatility, valuation weighed against expected returns in the jurisdiction, says Anya Levine, head of market strategy at Morningstar Sustainalytics.

“Canadian investors were far more likely to have a decreased allocations to U.S.-based assets in the past 12 months than the rest of the world and that was about 50 per cent in Canada versus 32 per cent for the rest of the world.”

Read: Canadian institutional investors with U.S. investments facing impact from currency volatility

According to a new survey from Morningstar Inc., which collected responses from more than 500 investors in 11 countries with combined assets of roughly $19 trillion, including 50 Canadian asset owners averaging $49.1 billion in assets, Canadian investors are also backing off the U.S. due to the re-election of President Donald Trump.

The survey, which allowed respondents to select several different reasons for this pull back, found 52% of Canadian investors cited U.S. dollar currency volatility, while the same percentage chose the re-election of President Donald Trump and relative valuation and expected returns by region.

The survey also found 12% of Canadian asset owners are planning to decrease allocations to the U.S., compared to 8% of global asset owners.

In addition, the survey found 12 per cent of Canadian respondents said they’re planning to decrease U.S. allocations, compared to eight per cent of global investors, Levine says.

Read: Institutional investors turning to diversified portfolios to manage tariff volatility: expert

Canadian investors were more likely (38 per cent) to identify the current U.S. administration as a very material issue for their portfolios compared to other global asset owners (31 per cent). Indeed, it isn’t only Canadian investors looking to diversify from the U.S. investment market — the survey found four in 10 global asset owners reported reducing or planning to reduce allocations to the U.S., with 76 per cent reporting ongoing trade disputes are a material risk to their investments.

Canada is also forging its own path when it comes to environmental, social and governance investing, with Canadian asset owners citing stakeholder pressure (45 per cent), fiduciary responsibilities or requirements (45 per cent), ethical or moral principles (43 per cent) as the leading factors for incorporating ESG considerations more frequently than global investors.

“Canadian investors [highlighted] portfolio decarbonization as the preferred method for promoting transition readiness,” says Levine, noting the broader investment community was focused instead on climate transition risk engagement and real-world emission reduction.

Read: Institutional investors reconsidering ESG model: report

The most popular barriers for ESG integration — impact on returns, lack of standardized data and difficulty reporting —were reported at lower percentages among Canadian investors compared to the rest of the world, the survey said.

Based on the results, Levine says Canadian stakeholders are putting more pressure on organizations to diversify allocations when considering ESG compared to regions where investors are more comfortable managing existing allocations in high-emitting companies with a target to reduce emissions over time.

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