Structured Global Equity
Strategies
Managing Risk Through Global Diversification
Fears over the health of the global economy and the U.S.-based financial sector maelstrom weighed on global markets. Investors fled riskier holdings and unwound trades that depended on borrowed cash.
The focus was on inflation as the quarter opened, as the price of oil and other key commodities surged. But superseding these concerns by September’s end was evidence of slowing worldwide economic growth; recession-like conditions in the world’s largest economies; and the financial crisis in the U.S.
The U.S. stock market fared relatively well compared to global peers. The Dow Jones Industrial Average fell -3.7% over the quarter, while the Dow Jones World Stock Index, excluding the U.S., dropped -22% in dollar terms.
The MSCI-EAFE index, a benchmark of the developed international markets, was down -20.6% for the quarter and -29.3% for the year’s first nine months. Emerging Markets were down -26.9% for the quarter and -35.4% for the first nine months.
Under mounting concerns about the condition of U.K. banks, Britain’s FTSE 100 sank -13% for the quarter. Despite its better capitalized banking sector, Japan’s Nikkei index retreated -17%. China’s Shanghai Composite Index fell -16%.
Stocks that in recent years benefited from rising commodity prices retreated from their highs. Resource-heavy countries like Brazil and Russia were down -24% and -47%, respectively, in the quarter.
Russia in particular experienced a stock-market crisis in September, as the conflict with Georgia, falling oil prices, and widespread aversion to risk caused local and foreign investors to exit. Volumes were down and cash flows dried up as a consequence of Russia’s Georgia incursion on August 8. Trading on Russia’s two main stock markets was halted repeatedly and the government intervened to support the ruble.
Another factor shaking American interest in international stocks was a third-quarter rally by the U.S. dollar. Over the course of the quarter, the dollar strengthened +11.8% versus the euro, rallied +12% against the British pound and was little changed versus the Japanese yen. For years a weak dollar has provided a sweetener for returns earned in foreign currencies because when repatriated they translate into more dollars.
One exception to the overall trend of major losses in the quarter was India, finishing the quarter down only -4.5%. As a large oil importer, India is a beneficiary of lower energy prices.
After years of tremendous
returns, a natural consequence can be a strong readjustment; which is
characteristic of the volatility displayed in markets that have provided
50-60% positive returns in prior years. Properly diversified portfolios
seek to manage the risk and ride out the storm.
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
