Blog Archives

Revisiting Risk and Reward (Part 2)

A previous blog article explored income-centric risk and reward definitions, more suitable to retirement than the usual academic definitions. Corresponding quantitative analysis of some simple US portfolios was provided.

This article extends this investigation by taking the perspective of investors located in various developed countries (a form of ‘out of sample’ testing).

Posted in Asset allocation, international stocks, Market history, Market statistics, Portfolios, Retirement

Telling Tales – 2017 update

This article provides updated Telltale charts, including 2017 returns. It focuses on the relative past performance of value and size factors compared to the total US market, as well as studying international and real estate funds. 
Using Telltale charts can be very informative, truly ‘telling the tale’ of what happened over time to portfolio trajectories, illustrating return to the mean properties, or lack thereof.

Posted in Asset allocation, international stocks, Market history, Market statistics, Portfolios, REITS, Value premium

Under the hood – Vanguard international index funds in 2017

Vanguard issues annual reports for the firm’s international and global index funds on October 31 of each year. The reports provide information that can highlight some of the underlying conditions affecting a fund’s future capital gains distribution outlook; an indication

Tagged with:
Posted in international stocks, Market statistics, Vanguard

Portfolio Diversification: REITs and International/Emerging Bonds

Vanguard and others have put a lot of emphasis on bonds diversification using international bonds in recent years, while the Bogleheads community mostly shrugged. This article studies the effect of such diversification through backtesting techniques, looking at both regular International bonds and Emerging Market bonds. We’ll take a close look by studying monthly returns to better analyze the volatility and correlation properties of various portfolios. Then we’ll perform a similar study about diversification of equities with domestic, global or international real estate funds.

Posted in Asset allocation, Bonds, international stocks, Market history, Market statistics, Portfolios, REITS

International Small-Caps and Vanguard funds

Vanguard manages two funds addressing the International Small-Caps market segment. The Vanguard International Explorer Fund (VINEX) is one of them. It was launched in Nov-96 by a UK investment company (Schroders PLC), then acquired by Vanguard in Mar-02, and it keeps operating as an active fund to this day.

More recently (Apr-09), Vanguard launched the Vanguard FTSE All-World ex-US Small-Cap Index Fund (VFSVX – also known as VSS in ETF form), a passive index fund.

This articles explores the differences between the two funds, as an attempt to help investors decide which one is best suited for them.

Posted in international stocks, Market history, Vanguard

Investing in the World – Part 3

This article is the third part of a study looking at global and domestic investing from the perspective of local investors.

In Part 1 and Part 2, we took the position of a local investor in one of 16 countries of interest, and we explored somewhat extreme positions of either investing 100% global or 100% domestic. It is now time to try a more balanced view of things, and study portfolios mixing global and domestic investments. We will notably look at the mitigation this could bring to the countries having fared the worst, but also consequences for countries having fared better. Of course, it is easy to look at such numbers in hindsight and draw hasty conclusions, so let’s keep in mind that nobody could have predicted winners and losers ahead of time.

Posted in Asset allocation, international stocks, Investing, Market history, Market statistics, Portfolios

Investing in the World – Part 2

Many North American investors tend to look carefully at historical returns in the US and in Canada, and draw various conclusions. Occasionally, some references are made to Japan and the UK, and few people look any further. The world changes though. The UK was undoubtedly the world economic leader at the end of the 19th Century, while the US clearly dominates nowadays. Japan was on a roll, had a bigger market capitalization than the US in the 80s, and yet badly faltered since then. The world changes in ways we cannot predict, and it would be naive to assume that several decades from now, the situation will be similar to today’s environment. One thing we can do to get some perspective, is to try to draw some analogies with what happened in a larger sample of countries.

This article focuses on the historical returns from 16 developed countries, looking from the perspective of a local investor, and assuming a strong home country bias to begin with (i.e. solely using domestic stocks and domestic bonds). We will look at more diversified portfolios mixing domestic and global investments in Part 3.

Posted in Asset allocation, international stocks, Investing, Market history, Market statistics, Portfolios

Investing in the World – Part 1

True Bogleheads know the power of diversification. And yet, many such investors (including John Bogle himself!) are reluctant to diversify beyond domestic investments. Japanese investors could have perceived the same thing, with a remarkable run in the 80s in terms of market capitalization (nearly half of the world, higher than the US at some point) and in terms of stock returns. Unfortunately for Japan, as discussed in a previous blog article, this impressive success was followed by the worst equity crisis in modern history. This study about Japan also showed how some level of international diversification would have helped a local investor to mitigate this extremely painful crisis.

This raised an interesting question. Could one simply invest in the world, using global stocks and global bonds? And if this proves unsatisfying, is there a proper middle ground between domestic and global allocations?

Posted in Asset allocation, international stocks, Investing, John Bogle, Market history, Market statistics, Portfolios

Vanguard International ETFs: a growth story

Vanguard has an extensive selection of international index exchange-traded funds (ETFs). The firm has added ETF share classes to a number of its long standing international funds (Europe, Pacific, Emerging Markets, Developed Markets, and Total International). It has also introduced

Tagged with: ,
Posted in international stocks, Vanguard

A short study of the recent Japanese crisis

Based on public data sources providing Japanese stock returns and bond interest rates, this article provides a quantitative analysis of the trajectory a Japanese passive investor could have experienced with his portfolio during the 1980-2016 time period. Japan suffered from what was probably the most severe stock crisis in modern history, starting by the end of 1989, taking nearly two decades to finally somewhat recover, and then being slammed again by the financial crisis of 2008. There is no equivalent in U.S. history of such long lasting crisis, and as such, it is a sobering example of what could happen.

Posted in Asset allocation, international stocks, Market history, Portfolios, Value premium
Follow Financial Page on