In Dave Garff’s 2011 whitepaper, Do Countries Matter?, one of the most compelling charts was looking at the Monthly High-Low Range of country returns. The chart looked at 39 countries in both emerging and developed markets going back to 1991, and charted the monthly range of returns between the best performing market and worst performing market. Since 1991 it has been a compelling opportunity for investors to consider that by purely focusing on country selection within their global equity allocation, the long-term average monthly return range was over 33% per month.
However, since 2010 global investing has been marked by a period of significant outperformance of the United States relative to the rest of the world. As of July 31, 2014, the United States had outperformed the average country in the 39 country universe by a cumulative 56.02% in USD or an average annualized performance of 10.49% per year.
What is striking to me is looking at how significantly the range of returns dropped from the last decade. During the preceding 10 years, the United States underperformed the average country by a cumulative 299.95% or average annualized performance of 14.22%. Since that time, the average monthly range dropped by nearly 6% per month and the max monthly range dropped by nearly 30%.
While it is possible to look at the recent trend and suggest the country selection opportunities are narrowing, I would suggest that the recent drop in country selection opportunities has more to do with United States dominance of global equity markets, and less to do with a systematic change to the marketplace. As international markets turn and more specifically emerging markets recover, my expectation is that country selection opportunities will increase and give investors increased alpha generating opportunities for their investment portfolios. Using the abundant list of single-country ETFs should make expressing those opportunities even easier.
This article was written by Accuvest Global Advisors, a California-based RIA and sub-advisor of the AdvisorShares Accuvest Global Opportunities ETF (ACCU) and the AdvisorShares Accuvest Global Long Short ETF (AGLS).