Diversification is advised

The equity markets continue their powerful rally with North American markets up around 40 per cent over the past twelve months.  But this pales into insignificance when you see the returns for overseas markets. I’m going to recommend you have some fun with the family in the kitchen at the weekend with a big globe and a table of global equity market returns.  
The game would go something like this:  Dad says to his younger son: “Jimmy, can you point to where Uncle Pete’s job was outsourced to last year, and whose stock market is up 70 per cent?”  

Jimmy had recalled conversations that his uncle had with his Dad and quickly span the globe searching for that triangular shaped country he remembered from school. He pointed to India with a big smile.  “That’s my boy, that’s right,” says Dad impressed, “and I’m pleased to say I had a small exposure to an Exchange Traded Fund in our portfolio which has exposure to these stocks.” ( IFN US )
Dad then directs the next question at his college age son John whom was sitting feeling under pressure now following his young bro’s correct answer. 
“Which other countries stock market is up 70 per cent but is very close to the US?” 
John quickly thought of two countries but didn’t know for sure which one.   Hedging his bets John replies “I’m not sure if it’s Canada or ..…“  Dad was smiling, impressed, as Canada was indeed up strongly at around 60 per cent.  “or……Mexico. Yes. I’m going to say Mexico because I had such a great time there at spring break!”  
“Spot on son,” Dad laughs. “I got exposure to this through iShares MSCI Mexico  (EWW US),” he announces proudly. 
Dad then mischievously decides to pick a really hard one for Mum.  “OK, which market was up 253 per cent over the past twelve months?”
“Oh come on George!”  Mum retorts. “You need to give me a clue!”
“OK, OK, it’s very, very cold most of the time.” Mum was very much smarter than he thought and her mind immediately remembered a Sunday Times article about the eastern bloc’s powerful equity market rally. “Russia,” she nonchalantly replied. ING Russia Fund was indeed up 114 per cent. (EWS US).
“No,” says Dad with a smug grin. Mum is not happy about the tough question and replies: “I don’t care what country it is but I hope you had some in our investment account.”

Dad wasn’t feeling too clever, as he hadn’t.  “Well, it’s Ukraine,” he says superiorly. When Mum challenged him to point to it quickly on the globe, and of course he couldn’t, he was forced to concede to washing the dishes that afternoon to the amusement of the kids, and Mums delight. 
Investors should know that the principal of a diversified portfolio extends beyond finding companies in different industries. The dollar’s decline has helped a number of overseas markets and apportioning some of your families nest egg overseas has proven to be just plain prudent. And indeed could be fun, educational and profitable for the family to think about the big picture on a rainy afternoon.   

Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited.  The Bank accepts no liability for errors or actions taken on the basis of this information.


Stock Watch By Butterfield’s Steve Evans