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FOREIGN INDEX BASKETS
WEBS
Ticker
Symbol
WEBS
Ticker
Symbol
Australia
EWA
Malaysia
EWM
Austria
EWO
Mexico
EWW
Belgium
EWK
Netherlands
EWN
Canada
EWC
Singapore
EWS
France
EWQ
Spain
EWP
Germany
EWG
Sweden
EWD
Hong Kong
EWH
Switzerland
EWL
Italy
EWI
U.K.
EWU
Japan
EWJ
Sources: Modified from The Outlook, May 22, 1996, published by
Standard and Poor’s; and Amex website, www.amex.com,
February 2000.
Reprinted by permission of Standard & Poor’s, a division of
The McGraw-Hill Companies, Inc.
WORDS FROM THE STREET
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898
P A R T V I I
Applied Portfolio Management
Market Value ($ billion)
Performance 2002–2011
($ - denom. returns)
Country-Index Portfolios
2001
2006
2011
Average
SD
Sharpe Ratio
U.S.
11,850
15,520
13,917
0.21
4.63
0.0444
Developed Ex U.S
10,756
22,065
18,487
0.48
5.48
0.0869
Emerging
1,230
5,319
5,765
1.35
6.86
0.1971
Developed 1 EM
11,987
27,384
24,251
0.61
5.63
0.1077
U.S. 1 Developed
22,606
37,585
32,403
0.34
4.99
0.0680
U.S. 1 EM
13,080
20,839
19,681
0.36
4.94
0.0736
World
23,836
42,904
38,168
0.50
5.32
0.0948
Regional-Index Portfolios
MSCI EAFE (Europe 1 Australia 1 Far East) 5 Developed
0.42
5.41
0.0771
MSCI emerging markets
1.21
7.00
0.1734
MSCI World excluding U.S.
0.46
5.41
0.0841
World
0.31
4.90
0.0637
Table 25.9A
Market value and performance of country portfolio combinations compared with regional-index portfolios
Source: Datastream.
Table 25.9B
Performance of individual-country-index portfolios, monthly excess returns in U.S. dollars over 2002–2011
Regression against U.S.
Individual-Country-
Index Portfolios
Average
SD
Sharpe
Ratio
Corr. w/U.S. Beta Alpha Residual SD Info Ratio
Developed
U.S.
0.21
4.63
0.0444
1
1
0
0
0
Australia
1.17
6.75
0.1728
0.82
1.20
0.92
3.84
0.24
Austria
0.78
8.87
0.0876
0.74
1.42
0.49
6.00
0.08
Belgium
0.32
7.47
0.0434
0.79
1.28
0.06
4.56
0.01
Canada
0.99
6.33
0.1557
0.80
1.10
0.76
3.77
0.20
Denmark
0.97
6.48
0.1496
0.78
1.10
0.74
4.04
0.18
Finland
0.09
8.93
0.0101
0.77
1.49 2 0.22
5.72
2 0.04
France
0.37
6.76
0.0548
0.88
1.29
0.11
3.19
0.03
Germany
0.58
7.80
0.0743
0.89
1.49
0.27
3.64
0.08
Greece
2 0.51
10.10 2 0.0506
0.66
1.43 2 0.81
7.65
2 0.11
Hong Kong
0.74
6.33
0.1175
0.69
0.94
0.55
4.61
0.12
Ireland
2 0.37
7.69 2 0.0477
0.79
1.31 2 0.64
4.73
2 0.13
Israel
0.56
6.19
0.0904
0.64
0.86
0.38
4.76
0.08
continued
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C H A P T E R
2 5
International
Diversification
899
Regression against U.S.
Individual-Country-
Index Portfolios
Average
SD
Sharpe
Ratio
Corr. w/U.S. Beta Alpha Residual SD Info Ratio
Italy
0.21
7.18
0.0291
0.82
1.27 2 0.05
4.11
2 0.01
Japan
0.23
4.95
0.0463
0.56
0.60
0.11
4.11
0.03
Netherlands
0.41
6.95
0.0589
0.88
1.32
0.14
3.32
0.04
New Zealand
0.97
6.22
0.1554
0.67
0.90
0.78
4.64
0.17
Norway
1.35
8.98
0.1507
0.78
1.51
1.04
5.68
0.18
Portugal
0.35
6.74
0.0524
0.73
1.06
0.13
4.63
0.03
Singapore
0.99
6.71
0.1475
0.75
1.09
0.77
4.43
0.17
Spain
0.76
7.53
0.1009
0.79
1.29
0.49
4.62
0.11
Sweden
0.94
8.01
0.1177
0.86
1.49
0.64
4.11
0.16
Switzerland
0.60
5.04
0.1194
0.79
0.86
0.42
3.10
0.14
UK
0.38
5.29
0.0725
0.87
1.00
0.18
2.60
0.07
Emerging
Argentina
1.32
11.05
0.1191
0.44
0.44
1.05
1.10
0.96
Brazil
2.10
10.86
0.1931
0.71
0.71
1.66
1.76
0.94
Chile
1.46
6.69
0.2179
0.63
0.63
0.91
1.27
0.72
China
1.37
8.13
0.1683
0.62
0.62
1.10
1.14
0.96
Colombia
2.95
8.76
0.3367
0.53
0.53
1.00
2.74
0.36
Czech Republic
2.06
7.93
0.2593
0.62
0.62
1.06
1.84
0.58
Egypt
2.17
10.29
0.2111
0.40
0.40
0.89
1.99
0.45
Hungary
1.25
10.78
0.1155
0.70
0.70
1.64
0.91
1.80
India
1.53
9.13
0.1676
0.62
0.62
1.21
1.28
0.95
Indonesia
2.77
10.01
0.2766
0.54
0.54
1.17
2.53
0.46
Jordan
0.59
6.32
0.0932
0.28
0.28
0.38
0.51
0.75
Malaysia
1.07
5.27
0.2033
0.59
0.59
0.67
0.93
0.71
Mexico
1.28
7.09
0.1809
0.83
0.83
1.27
1.02
1.24
Morocco
1.18
6.01
0.1970
0.31
0.31
0.41
1.10
0.37
Pakistan
1.87
10.09
0.1849
0.14
0.14
0.31
1.80
0.17
Peru
2.53
9.54
0.2655
0.52
0.52
1.08
2.31
0.47
Philippines
1.27
7.37
0.1725
0.48
0.48
0.77
1.11
0.69
Poland
1.19
10.24
0.1162
0.75
0.75
1.65
0.85
1.94
Russia
1.50
10.30
0.1457
0.61
0.61
1.35
1.22
1.10
South Africa
1.61
7.93
0.2031
0.68
0.68
1.16
1.37
0.84
Korea
1.34
8.76
0.1526
0.75
0.75
1.41
1.05
1.35
Sri Lanka
1.82
10.92
0.1663
0.19
0.19
0.45
1.72
0.26
Taiwan
0.52
7.44
0.0697
0.70
0.70
1.12
0.29
3.86
Thailand
1.92
8.34
0.2298
0.57
0.57
1.03
1.70
0.61
Turkey
1.66
13.14
0.1267
0.59
0.59
1.67
1.32
1.27
Table 25.9B
Concluded
Performance of individual-country-index portfolios, monthly excess returns in U.S. dollars over 2002–2011
Source: Datastream, online.thomsonreuters.com/datastream.
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900
P A R T V I I
Applied Portfolio Management
The performance of these portfolios is contrasted with that of completely feasible
international diversification by investing in regional-index funds, which are also shown
in Table 25.9A . This comparison is based on standard performance statistics, namely,
average and standard deviation of excess returns (denominated in U.S. dollars), as well
as beta and alpha estimated against a U.S.-only portfolio. We will assess these perfor-
mance statistics after we first take a broad-brush look at the return behavior of developed
versus emerging market indexes.
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