Bray – Pi – Russell – Tassin – Wang
AGENDA
• Diversifying Internationally
• Examining International Asset
Allocation
• Selling the Clients
• Analyzing the Data
• Presenting our Recommendations
Bray – Pi – Russell – Tassin – Wang
DIVERSIFYING INTERNATIONALLY
• 2013 saw record-breaking
domestic equity market returns
• S&P 500 – 29.6% gain
• DJIA – 26.5% gain
• MSCI EAFE – 22.6% gain
• Sandra Meyer, Founder,
CapGlobal Advisors
• Henry Bosse, CIO, Local State
Pension Fund
Bray – Pi – Russell – Tassin – Wang
EXAMINING INTERNATIONAL
ASSET ALLOCATION
• Diversify portfolios with international holdings
• Alleviate unsystematic risk
• Unsystematic risk – “company” risk that is
reducible through diversification
• Extensive research on international markets
• Quantitative modeling suggests that international
asset allocation works
Bray – Pi – Russell – Tassin – Wang
SELLING THE CLIENTS
Client Resistance to International Holdings
• Familiarity with domestic companies and markets
• Impression of
mature markets
as safe
• Ethnocentrism
• Easier to stay
informed on just
one market
Bray – Pi – Russell – Tassin – Wang
SELLING THE CLIENTS
Educate Clients On:
•
Benefits of international diversification
•
Drivers and consequences of correlations among
global equity markets
•
Impact of currency movements on returns of global
portfolios
•
Annualize returns and deviations to ease client
understanding
Bray – Pi – Russell – Tassin – Wang
ANALYZING THE DATA
① Returns and standard deviations of international
and domestic markets, 1991-2001 and 2002-2013
② Correlations between markets, 1991-2001, 20022013, and 1991-2013
③ Annual returns of Morgan Stanley’s EAFE and EM
indices compared to S&P 500
④ Portfolios with mixes of foreign and U.S. equities,
1991-2001, 2002-2013, and 1991-2013
⑤ Efficient frontier of foreign and U.S. equities
Bray – Pi – Russell – Tassin – Wang
QUESTIONS
Bray – Pi – Russell – Tassin – Wang