AyG
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Post by AyG on Jan 5, 2020 10:40:03 GMT 7
Turning now to the argument about being overweight in one’s home market. It’s something I used to believe, but now am not so sure about, for a few reasons, including:
(a) Developed markets are increasingly correlated, so the benefits of diversification across them have largely disappeared.
(b) There is no rational reason to think that one’s home market will perform better than the global average.
(c) There is no clear correlation between a country’s economic performance and stock market performance.
In the specific case of Thailand, there are plenty of reasons not to invest (at least more than a fraction of one’s wealth):
(a) The Thai stock market is very volatile. Using ThaiDEX SET50 (the only Thailand-based ETF with a 10 year track record) as a proxy for the SET, one will see that (on a total return basis) in 2012 it was up 35%. In 2015 it was down 17%. The next year it was up 24%. Personally, I don’t like such a roller coaster ride.
(b) The market is corrupt, with companies working for the benefit of certain individuals and families, not shareholders. Insider trading and price manipulation are rampant.
(c) Recent performance under the military has been lacklustre, and (in my opinion) is likely to continue to be so for many years given the determination of the men in uniform to keep a grip on power. (Five year annualised total return of the aforementioned ETF has been 4.1%.)
(d) Management charges for Thai funds are high (initial/annual/exit).
Putting all that aside, what has been the actual cost of investing in the Thai stock market over the last 10 years?
Using iShares MSCI Thailand [THD on the NYSE] to represent the Thai market, you’d have had a 10 year annualised return (accounting in USD) of 10.3%. Compare this with the 11.8% of the previously mentioned iShares Core MSCI World (again in USD) over the same period.
In other words, you’d be 1.5%/year worse off.
Some people might consider that’s a price worth paying. And given their circumstances, it might be. Sobeit. For me, I’m not so keen these days.
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chiangmai
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Post by chiangmai on Jan 6, 2020 5:12:50 GMT 7
Correlation seems to be at the heart of the matter. Whilst most markets appear to move in a similar direction, at the same time, I've not seen anything to suggest all markets move at the same pace and to the same extent all the time. I have always thought that a major benefit of geographical diversification is the ability to capitalise on the extent to which markets don't move in tandem, similar to asset diversification whereby the movement in bonds is rarely identical to the movement in equities. If those things are not true, why would we diversify by asset type? With regard to profitability versus geographic spread: if all funds were ranked from most profitable downwards and the top five were Chinese or Mongolian I doubt that rgs would want to invest in them, instead he prefers to hold well regarded, geographically balanced, globally diverse funds such as Monks, Scottish Mortgage and Witan. So perhaps the criteria is conditional, geographically diverse yes but only if managed under the auspices of well-regarded Fund Managers, which as I recall is one of FS's major criteria......makles sense to me but that's no guarantee of anything these days.
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AyG
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Post by AyG on Jan 6, 2020 10:09:32 GMT 7
There used to be a lack of correlation between different geographical regions. However, as the world has become increasingly globalised correlation has increased, meaning that the benefits of diversification have to a certain extent evaporated. However, many journalists (and financial advisors for that matter) simply are unaware of this and continue to repeat the now outdated dogma.
This also applies to bonds, where correlation with equities has increased. This has rendered the traditional 60/40 portfolio obsolete - not that you'd guess it from reading the popular press.
The high allocation to the US of global funds is a function of a number of factors:
(a) Most of the world's largest companies are American
(b) Many of the world's most innovative companies are American
(c) Many of the world's most profitable companies are so, at least in part, because of their tax avoidance, and are American. (Something they couldn't get away with in some other countries.)
(d) It's always safest for a fund manager to stay close to an index (at least, for the fund manager's job, if not for the investors)
Remember that these companies typically are global in reach, so are not a simple play on the US*. And, provided they don't hedge their currency exposure (and most don't), they are not a play on the Yankee peso.
* Note in the UK the divergence in performance between the FTSE 100 (the largest companies, with substantial overseas interests) and the FTSE 250 (medium sized companies, with primarily a domestic focus).
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chiangmai
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Post by chiangmai on Jan 6, 2020 13:16:59 GMT 7
We need the sage of Bolton to stick his oar in here, is he MIA after a heavy new years?
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Post by rgs2001uk on Jan 6, 2020 20:11:43 GMT 7
Turning now to the argument about being overweight in one’s home market. It’s something I used to believe, but now am not so sure about, for a few reasons, including: (a) Developed markets are increasingly correlated, so the benefits of diversification across them have largely disappeared. (b) There is no rational reason to think that one’s home market will perform better than the global average. (c) There is no clear correlation between a country’s economic performance and stock market performance. In the specific case of Thailand, there are plenty of reasons not to invest (at least more than a fraction of one’s wealth): (a) The Thai stock market is very volatile. Using ThaiDEX SET50 (the only Thailand-based ETF with a 10 year track record) as a proxy for the SET, one will see that (on a total return basis) in 2012 it was up 35%. In 2015 it was down 17%. The next year it was up 24%. Personally, I don’t like such a roller coaster ride. (b) The market is corrupt, with companies working for the benefit of certain individuals and families, not shareholders. Insider trading and price manipulation are rampant. (c) Recent performance under the military has been lacklustre, and (in my opinion) is likely to continue to be so for many years given the determination of the men in uniform to keep a grip on power. (Five year annualised total return of the aforementioned ETF has been 4.1%.) (d) Management charges for Thai funds are high (initial/annual/exit). Putting all that aside, what has been the actual cost of investing in the Thai stock market over the last 10 years? Using iShares MSCI Thailand [THD on the NYSE] to represent the Thai market, you’d have had a 10 year annualised return (accounting in USD) of 10.3%. Compare this with the 11.8% of the previously mentioned iShares Core MSCI World (again in USD) over the same period. In other words, you’d be 1.5%/year worse off. Some people might consider that’s a price worth paying. And given their circumstances, it might be. Sobeit. For me, I’m not so keen these days. Excellent precis there AyG, I belong to the school of thought that says, just because I live in Thailand doesnt mean I have to invest here, that shipped sailed yonks ago, Thailand has been good to me, dammed good, but that was then, this is now. You forgot to mention exchange rates.
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Post by rgs2001uk on Jan 6, 2020 20:13:24 GMT 7
There used to be a lack of correlation between different geographical regions. However, as the world has become increasingly globalised correlation has increased, meaning that the benefits of diversification have to a certain extent evaporated. However, many journalists (and financial advisors for that matter) simply are unaware of this and continue to repeat the now outdated dogma. This also applies to bonds, where correlation with equities has increased. This has rendered the traditional 60/40 portfolio obsolete - not that you'd guess it from reading the popular press. The high allocation to the US of global funds is a function of a number of factors: (a) Most of the world's largest companies are American (b) Many of the world's most innovative companies are American (c) Many of the world's most profitable companies are so, at least in part, because of their tax avoidance, and are American. (Something they couldn't get away with in some other countries.) (d) It's always safest for a fund manager to stay close to an index (at least, for the fund manager's job, if not for the investors) Remember that these companies typically are global in reach, so are not a simple play on the US*. And, provided they don't hedge their currency exposure (and most don't), they are not a play on the Yankee peso. * Note in the UK the divergence in performance between the FTSE 100 (the largest companies, with substantial overseas interests) and the FTSE 250 (medium sized companies, with primarily a domestic focus). I belong to the school of thought that says, there is no right or wrong portfolio, there is only whats right for you as an investor.
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Post by rgs2001uk on Jan 6, 2020 20:34:53 GMT 7
Correlation seems to be at the heart of the matter. Whilst most markets appear to move in a similar direction, at the same time, I've not seen anything to suggest all markets move at the same pace and to the same extent all the time. I have always thought that a major benefit of geographical diversification is the ability to capitalise on the extent to which markets don't move in tandem, similar to asset diversification whereby the movement in bonds is rarely identical to the movement in equities. If those things are not true, why would we diversify by asset type? With regard to profitability versus geographic spread: if all funds were ranked from most profitable downwards and the top five were Chinese or Mongolian I doubt that rgs would want to invest in them, instead he prefers to hold well regarded, geographically balanced, globally diverse funds such as Monks, Scottish Mortgage and Witan. So perhaps the criteria is conditional, geographically diverse yes but only if managed under the auspices of well-regarded Fund Managers, which as I recall is one of FS's major criteria......makles sense to me but that's no guarantee of anything these days. Chiangmai, I find it easier to pick out one good global IT, rather than pick out 5 individual ITs giving exposure to , US, UK, Europe, Asia and Emerging markets. www.moneyobserver.com/how-global-investment-trusts-have-been-reducing-home-biasWhat is it they say, America sneezes and the rest of the world catches a cold, . Out of the funds mentioned above, I hold 6, Alliance, Bankers, F&C, Monks, Scott Mort and Witan. I have nothing against China or Mongolia, per se, but I like to look at a track record built up over a period of time, sustainaability and continual growth. There are certain parts of the world, I wont touch, anything south of the USA, Venezueala should be one of the richest countries in the world, its not, Brazil and Argentina, basket cases, I sure dont want my money there. Africa, corruption rampant, see St Africa and Zimbabwe for details, The Middle East, dictatorships, not for me thank you. At the moment, I hold 20 investments with the stockbroker, in the summer, at least 5 will be sold and reinvested within my portfolio (eg, adding to what I already hold) to be sold will be. www.hl.co.uk/shares/shares-search-results/w/worldwide-healthcare-trust-plc-ordinary-25pwww.hl.co.uk/shares/shares-search-results/p/polar-capital-technology-trust-ord-25pLooking at the performance above, many would say I was crazy to even contemplate selling. Next two will be. www.hl.co.uk/shares/shares-search-results/r/royal-dutch-shell-plc-b-shares-eur0.07www.hl.co.uk/shares/shares-search-results/b/bp-plc-ordinary-us$0.25I have held the two above for so long, they have basically paid for themselves in divis over the years. I am downsizing what I hold from 20 to about 15. The above is not a recommendation, anyone looking for financial advice, please look elsewhere.
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