No One Knows What Will Happen with Brexit… But Long-Term Investors Probably Shouldn’t Worry Too Much

This blog is from the July issue of Portfolio Perspectives.
 
Unlike fans of horror movies, markets hate scary surprises.
 
On June 22, many markets, even betting parlors, were predicting that British voters would opt to stay in the European Union (the odds went as high as 80% for staying). On June 23, gamblers and markets were proven wrong and stocks fell precipitously around the world, plunging more than 5% in the U.S. in just two days.
 
Some of the doomsayers from January, when the S&P 500 Index sank more than 10% and then rebounded to positive territory again by the end of Q1, came out of the woodwork to predict new Brexit-related disasters. Even European Council President Donald Tusk said, “I fear that Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety.”

Talking to Your Clients about 2014 Performance

For some of us, 2014 performance has been more difficult to explain to clients than 2008, and I understand why. U.S. Large Cap indexes, the ones our clients zero in on, have been up over 10% for the year, strongly outperforming a globally-diversified portfolio.

Where in the World Were the Best Returns? Probably Not Where You’d Guess…

 
Political coups, rampant inflation, debilitating deflation, capital controls, civil unrest… any one of these could scare investors out of a particular region. Yet each of these daunting events occurred in a market that outperformed the US over the last 10 years.

Can GDP Growth Rate Predict Stock Market Return?

2013 was a great year for investors. Stock markets in all 24 developed countries had positive returns, with Greece being the best gaining 49%.
 
What may be surprising to many investors is that the PIIGS (Portugal, Italy, Ireland, Greece and Spain), which were in financial turmoil during the last few years, were among the top performers in 2013. The BRICs (Brazil, Russia, India, and China), which had strong GDP growth, were among the bottom performers.
 
Chart 1: 2012 GDP Growth Rate and 2013 Market Return
 

Source: World Economic Outlook Database October 2013, Morningstar Direct January 2014.