In a shocking shift, Canadian investors are withdrawing from U.S. equity funds at record-high rates, marking the steepest exit since the pandemic hit. A new report from Sun Life SLF-T reveals that amid economic turbulence, many are pivoting towards more conservative investments.

Despite these withdrawals, overall investment stability remains intact, showing that Canadians are still committed to their long-term financial goals. The average contributions to group retirement plans saw a promising rise, climbing over $9,500—up six percent from last year.

Dave Jones, senior vice-president of Group Retirement Services at Sun Life, expressed optimism, stating, "While some investors are adjusting their finances, it’s heartening to see they aren’t hastily pulling their money out of the market. They're engaged and seriously considering their financial futures during these challenging times."

The report highlights a trend of what analysts are calling "statistically significant derisking," with many Canadians reallocating their investments into safer options like guaranteed investment certificates and money market funds for more stability during uncertain times.

A Growing Hesitation Towards U.S. Stocks

Financial expert Jason Heath noted that his clients are echoing this cautious sentiment. “With all the political and trade tensions, it’s wise for people to be wary of U.S. stocks,” he remarked, citing that many Canadians may not realize how heavily their portfolios are tied to the U.S. market, particularly as U.S. stocks now dominate 72% of the MSCI World index—up from 48% in 2010.

Heath urged investors to reconsider their allocations, saying, "If portfolios haven’t been rebalanced recently, chances are they’re heavily weighted in U.S. stocks, which have outperformed global markets." This has sparked a renewed interest in "buy Canadian" investment strategies.

Target Date Funds on the Rise

Simultaneously, a surge in the popularity of target date funds is evident. These funds automatically become more conservative as retirement approaches, now representing 42% of member balances compared to just 29% in 2018. Historically, those investing in target date funds have outperformed their counterparts in non-target date funds for eight out of the last ten years.

Heath calls it "investing on autopilot," eliminating the risk of poor timing or hasty investment decisions, in a strategy that caters to the secure and proactive planning of investors.

As Canadians cautiously navigate the investment landscape, one thing is clear: the desire for security in uncertain times is causing a major shift in where they put their money.