Currencies and international stock returns Innocents Abroad Currencies and international stock returns Bray – Pi – Russell – Tassin – Wang

Bray – Pi – Russell – Tassin – Wang Diversifying Internationally Examining International Asset Allocation Selling the Clients Analyzing the Data Presenting our Recommendations AGENDA 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 Case background Issue we are addressing Describe Sandra Meyer’s philosophy of investment management. International holdings mitigate some market risk Extensive research on international markets

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 Why is Sandra sold on the concept of international asset allocation?

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 Why might it be difficult to sell her clients on this concept?

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 Educate clients on (1) the benefits of international diversification, (2) the impact of currency movements on returns of global portfolios, and (3) the drivers and consequences of correlations among global equity markets Bray – Pi – Russell – Tassin – Wang

Bray – Pi – Russell – Tassin – Wang Analyzing the Data Returns and standard deviations of international and domestic markets, 1991-2001 and 2002-2013 Correlations between markets, 1991-2001, 2002- 2013, and 1991-2013 Annual returns of Morgan Stanley’s EAFE and EM indices compared to S&P 500 Portfolios with mixes of foreign and U.S. equities, 1991-2001, 2002-2013, and 1991-2013 Efficient frontier of foreign and U.S. equities Bray – Pi – Russell – Tassin – Wang

Bray – Pi – Russell – Tassin – Wang Questions Bray – Pi – Russell – Tassin – Wang Based on the data you have calculated above, explain to Henry Bosse, why you feel that it would be wise to include some international diversification in the local state pension fund’s portfolio. Human bias idea – https://blog.wealthfront.com/the-benefits-of-diversification/