Tag: returns

There are over 1300 equity ETFs listed in the US. Of these, a fair number are country specific market-cap ETFs. With 2018 almost over, here’s how various country ETFs performed:

Thankfully, there is also an “all country” ETF – VT – the Vanguard Total World Stock ETF. Here’s the chart of excess returns over VT:

Very few markets managed to stay positive this year. Interesting times indeed!

Code and charts are on github.

All major world equity indices are hugely negative for this year. But is it really newsworthy? Here’s S&P 500 with all the 220-day max drawdown points marked:

You would soon run out of ink if you were to write up a report every time the market dropped the most in the past year. Here’s the one for the NIFTY 50:

And just because the index dropped doesn’t mean that subsequent positive returns are around the corner. Here are the charts for subsequent 220-day returns once a 220-day max drawdown has been made:

You have to squint really hard at the charts above to make a bull case after a drawdown.

We have systematically looked at these relationships quite extensively in the past. You can find them at our Buying the Dip and Market Timing collections. You will notice that the key ingredient is patience – it takes time for the odds to work in your favor.

Code and charts are on github.

According to investopedia, home country bias refers to the tendency for investors to favor companies from their own countries over those from other countries or regions. This tendency to invest in our own backyard is not unusual or surprising; it is a worldwide phenomenon. This bias is also understandable. After all, we are inclined to recognize and value domestic brands, and consequently, to trust in their solidity and ability to perform well on our behalf. Investors who exhibit home country bias with their investments tend to be optimistic about their domestic markets, and are either pessimistic or indifferent toward foreign markets.

Indian financial media will have us believe that investing in Indian midcaps is the road to riches. There is some truth in it. If you compare returns since early 2000’s, Indian midcaps trounced US midcaps:

But something broke in 2010:

The reasons are many. However, if you think back to 2008, Indian banks came out fairly unscathed from the credit crunch. Investors expected Indian markets to out-perform. But exactly the reverse happened. Year-on-year returns did not really call an early winner either:

This is precisely why investors should diversify across geographies. When it comes to markets, anything can happen.

RUA: Russell 3000 Index tracks the performance of the 3,000 largest U.S.-traded stocks which represent about 98% of all U.S incorporated equity securities.
MID: S&P Mid-Cap 400 Index tracks a diverse basket of medium-sized U.S. firms.

At first, the US Russell 3000 Value index (RAV) out-performed Growth (RAG) for over 6 years. Then 2008 happened and everything got crushed. Since then, Growth has out-performed Value by a huge margin.

Look at the chart closely, however, and you will notice that plain-vanilla cap-weight (RUA) is bang in the middle. Sure, it trailed Growth by about 60% cumulated over 15 years. But equities are only a part of a diversified portfolio and going cap-weight doesn’t require you to choose between Growth and Value – an endless debate that even academics are divided over. Cap-weight is good enough.

Besides, Growth out-performed Value by a noticeable margin in only 4 out of 15 years. Otherwise, the returns have been more or less on par:

There will always be debate over which strategy is “better” but sometimes, given a choice between Chocolate Chip and Very Berry Strawberry, picking Vanilla and sticking with it over the long haul makes the most sense.