Innocents Abroad

Innocents AbroadCurrencies and international stock returnsAbhilash KurupB15151Diversifying InternationallyExamining International Asset AllocationSelling the ClientsAnalyzing the DataPresenting our RecommendationsAGENDA

Diversifying internationally2013 saw record-breaking domestic equity market returnsS&P 500 29.6% gainDJIA 26.5% gainMSCI EAFE 22.6% gainSandra Meyer, Founder, CapGlobal AdvisorsHenry Bosse, CIO, Local State Pension Fund3Examining internationalasset allocationDiversify portfolios with international holdingsAlleviate unsystematic riskUnsystematic risk company risk that is reducible through diversificationExtensive research on international marketsQuantitative modeling suggests that international asset allocation works4Selling the clientsClient Resistance to International HoldingsFamiliarity with domestic companies and marketsImpression ofmature marketsas safeEthnocentrismEasier to stayinformed on justone market

5Selling the clientsEducate Clients On:Benefits of international diversificationDrivers and consequences of correlations among global equity marketsImpact of currency movements on returns of global portfoliosAnnualize returns and deviations to ease client understandingBray Pi Russell Tassin Wang6Analyzing the DataReturns and standard deviations of international and domestic markets, 1991-2001 and 2002-2013Correlations between markets, 1991-2001, 2002-2013, and 1991-2013Annual returns of Morgan Stanleys EAFE and EM indices compared to S&P 500Portfolios with mixes of foreign and U.S. equities, 1991-2001, 2002-2013, and 1991-2013Efficient frontier of foreign and U.S. equities7Correlations between the different markets using returns data

Correlations between the different markets using returns data Cont.

Portfolio Standard Deviation

Efficient Frontier

RecommendationRecommendation is to have a portfolio Investment (International asset allocation--- Diversification)