Invest Where the Action Is: Go International!
"Private information is practically the source of every large modern fortune."
Oscar Wilde, An Ideal Husband
An interesting phenomenon has crept up upon as all over the last few years. It is what I will call the benefits of "going international". It is really quite simple: it proposes that investors will be rewarded if they invest in parts of the world that offer the highest opportunities/returns. It is as simple as that. You should be invested where the action is!
This should come as no surprise to people who were early investors/adopters of the BRICs (Brazil, Russia, India and China) together with the attendant macro growth stories that they afford.
Looking in the long-only world proves this point. Consider Lipper data for the period 2000-2007 (through Sep) for US equity mutual funds produced an average annual return of only 4.86% and a median return of 4.50%. This was based upon 10,581 funds. For non-US equity mutual funds would have provided an average return of 7.67% and a median of 6.57%. That means that "going international" in the mutual fund equity world would have added an average of over 280 basis points additional return each year!
Mutual fund investing in Japan for the 2000-2007 (Sep) period would not have benefited most investors. The average return on 62 mutual funds was minus 3.35% and a median of minus 2.83%. But, looking at Asia ex-Japan would have provided a positive return to the tune of 12.10% and a median of 12.24%. Similarly suportive information can be gleaned from investing according to the Pacific Region, Eastern Europe and Latin America. In each case, returns exceeded those from the US-specific investment philisophy.
This simple comparison of returns in the long-only world looking at geographical exposure provides a clear indication that to "go international" matters on a return basis.
I would hazard to guess that the same would be true for hedge funds too. An astute investor should consider very carefully the geographical exposure of the underlying hedge fund manager because this is likely to matter.
Of course, there are other equally important considerations too, namely, what methodology is likely to help direct that exposure to be in the right place at the right time, and what do you do if certain geographies are not necessarily liquid? How does this impact our thinking of hedge funds? All of these issues are very relevant to the hedge fund of fund manager. Sadly, in more cases than not the HFoF simply takes it for granted that the underlying global manager makes the optimal investment decision. It might pay to look at this situation a little more closely. Mahalo!
"Private information is practically the source of every large modern fortune."
Oscar Wilde, An Ideal Husband
An interesting phenomenon has crept up upon as all over the last few years. It is what I will call the benefits of "going international". It is really quite simple: it proposes that investors will be rewarded if they invest in parts of the world that offer the highest opportunities/returns. It is as simple as that. You should be invested where the action is!
This should come as no surprise to people who were early investors/adopters of the BRICs (Brazil, Russia, India and China) together with the attendant macro growth stories that they afford.
Looking in the long-only world proves this point. Consider Lipper data for the period 2000-2007 (through Sep) for US equity mutual funds produced an average annual return of only 4.86% and a median return of 4.50%. This was based upon 10,581 funds. For non-US equity mutual funds would have provided an average return of 7.67% and a median of 6.57%. That means that "going international" in the mutual fund equity world would have added an average of over 280 basis points additional return each year!
Mutual fund investing in Japan for the 2000-2007 (Sep) period would not have benefited most investors. The average return on 62 mutual funds was minus 3.35% and a median of minus 2.83%. But, looking at Asia ex-Japan would have provided a positive return to the tune of 12.10% and a median of 12.24%. Similarly suportive information can be gleaned from investing according to the Pacific Region, Eastern Europe and Latin America. In each case, returns exceeded those from the US-specific investment philisophy.
This simple comparison of returns in the long-only world looking at geographical exposure provides a clear indication that to "go international" matters on a return basis.
I would hazard to guess that the same would be true for hedge funds too. An astute investor should consider very carefully the geographical exposure of the underlying hedge fund manager because this is likely to matter.
Of course, there are other equally important considerations too, namely, what methodology is likely to help direct that exposure to be in the right place at the right time, and what do you do if certain geographies are not necessarily liquid? How does this impact our thinking of hedge funds? All of these issues are very relevant to the hedge fund of fund manager. Sadly, in more cases than not the HFoF simply takes it for granted that the underlying global manager makes the optimal investment decision. It might pay to look at this situation a little more closely. Mahalo!
posted by Franklin Scruggins | 6:07 AM
0 Comments:
Post a Comment
<< Home