Structured Global Equity
Strategies
Global Equity Markets Once Again Diverge
Throughout the 2002-07 market rally, diversification across markets and asset classes offered investors protection against the inevitable downswings in any single market. The global economy reflected this reality when robust growth in China offset sluggish European economies. This position was sorely tested in 2008, when markets declined across the board, leaving no safe haven for investors.
However, divergence among global markets has returned in the first quarter of 2009, raising the prospect of genuine global diversification benefits. Global stock markets are now striking out on separate paths, in contrast to last year’s universal downturn. While the US market declined, BRIC countries (Brazil, Russia, India, China) staged impressive recoveries.
The Dow Jones World index, excluding US shares, fell 12% in the quarter, while emerging market shares improved 4% in local currency terms (0.5% in US currency terms).
Individual emerging markets recovered impressively in the first quarter. Both Brazilian and Russian indices rose 9% in local-currency terms, and India has moved into positive territory. China’s A shares did even better, jumping 30%, vs. a 65% decline in 2008.
Several factors appear to underpin the emerging market resurgence. They include (i) investors returning to global assets that are now available at substantial discounts, (ii) surprising strength of developing country financial sectors, and (iii) the size and scale of China’s economic stimulus package, which is garnering expectations of an earlier-than-expected return to trend growth for the Chinese economy.
European markets performed in line with the US. Specifically, German, French, and UK indices all fell in the range of 11 to 15%. Japan fared better than the US, but worse than emerging markets, with the Nikkei Stock Average falling 8%.
Dollar-based investors failed to capture the full benefit of these moderating markets as continuing economic uncertainty inevitably encouraged dollar buyers, driving up the value of the currency.
The return of divergent markets indicates that investors may no longer be indiscriminately selling; instead, some seem to be bottom fishing for individual stocks that they think are most likely to benefit from the inevitable recovery. However, we believe that investing in Oakwood’s globally diversified DFA fund portfolios is the best way to participate in the global economic recovery.
Oakwood Conservative
Global Equity
- Balance of value and growth
as well as large, medium and small capitalization stocks
- Suitable for investors
seeking income and long term capital appreciation
Oakwood Moderate
Global Equity
- Has an increased bias towards
value by using multiple asset classes and greater emphasis on smaller
capitalization stocks than the conservative strategy
- Suitable for investors seeking above average returns through long term capital appreciation
Oakwood Aggressive
Global Equity
- Has a higher component
of non-US companies, as well as a greater value tilt and emphasis on
smaller capitalization stocks than the moderate strategy
- Suitable for investors with a higher tolerance for risk seeking higher returns through long term capital appreciation
