The flavour of the moment in the press is the difficulties facing Greece and the effect this may have on investors.
A simple Google search on the term ‘Grexit’ returns 17,800,000 results. This is the term used for a Greek exit of the Euro. At the time of writing, the Greek government are looking likely to default on a debt repayment to the IMF due today of £1.06 billion. This has spun the press into all kinds of speculation.
But what does it mean for investors?
To provide some context, it is worth noting the performance of stock markets in 2014. The UK stock market returned 1.2% whilst the MSCI World Index delivered 12.1%. In this year we had Russian stock markets falling by 42.5% and Greek stock markets falling by 36.2%. Neither of these falls made a significant contribution to the MSCI World Index as these markets are relatively small. To give some perspective, Apple is worth three times more than Russia and Greece combined.
We also continue to believe that it is impossible to predict short term movements of markets. If things turn out worse than expected then markets will head down. If it turns out better than expected markets will rally.
The below table illustrate the difficulty in predicting which stock markets will do well and which will do badly. The table ranks historical annual stock market returns for different developed countries. The top block in each year is the best performing country down to the bottom block as the worst performing country. Each colour represents a different country. This shows that there is no predictable pattern to stock market returns, making trying to pick tomorrow’s winner impossible!
Interestingly, the best performing market over the past 20 years has been Denmark. Will it be the best performing market over the next 20 years? Who knows! But an exposure to that market will be in our clients portfolios.
Investors who follow a structured, diversified strategy are therefore more likely to capture the returns wherever they happen to occur in any given year. This diversified strategy also reduces the risk of being too heavily invested in any one country that happens to perform particularly badly in any given year.
If you have any questions please do contact me. Equally, if you know of anyone who would benefit from a review of their investment strategy, please don’t hesitate to pass on our details.