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23 July, 2019

The Randomness of Global Equity Returns

With a new Prime Minister in Downing Street, Brexit now seemingly unstoppable, and a slowing global economy it can be very tempting to think that now more than ever a focussed geographical asset allocation could spare an investor from the worst of any economic fallout, and gather in the best returns.

However, whilst it is undoubtedly true that some country's stock markets will perform better than others, it is rarely obvious ahead of time which they will be, indeed even when it is obvious, predictions are often wrong.  Trying to second guess which geographical exposure will provide the best returns in the future is at best a difficult task, and at worst a forlorn one.

Here, an article from Dimensional Fund Advisors looks at this further, using the latest data to determine whether it is feasible to predict which country will perform best in the future, or whether the best approach remains to be widely diversified across as many countries as possible, and capture the returns from markets when available in a disciplined, and academically systemic way.

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by John Stirling