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Quarterly Letter

Second Quarter 2018


The World Cup & Global Diversification

As I write this letter, we are entering the final stages of the 2018 World Cup in Russia. The World Cup is held every four years with 32 of the top national soccer teams in the world meeting to play for the world championship. It is arguably the biggest sporting event in the world with many soccer crazed countries virtually shutting down for the duration of the tournament.

After 20 years of being a soccer dad to my two daughters, I have developed a great appreciation for “the beautiful game”. I now find the World Cup to be one of the sporting events that I most eagerly anticipate and recently added attending a World Cup to my “bucket list”.

What has stood out for me about the current World Cup is the unpredictable nature of the results. Several of the top soccer playing nations in the world failed to even qualify for the tournament including Italy, Chile, and the Netherlands. Shockingly the United States also failed to qualify. Though the US men’s team has historically struggled to compete with the top teams in the world, they had a relatively easy path to qualify for the tourney.

The unpredictable twists and turns continued as the tournament began. Defending champion Germany, one of the favorites to win it all, was ousted in the first round. Argentina and Portugal, featuring two of the best players in the world - we Lionel Messi and Cristiano Ronaldo, were sent home in the round of 16.

Had you been betting on the World Cup, it would have been wise to diversify your selections. Had you put all your money on the US, you would not have even made it to the starting line. Even safe bets like Germany and Argentina would not have served you well.

We take a similar approach in diversifying your investment portfolio. From year to year, we don’t know which countries or parts of the world will outperform. By building a globally diversified portfolio, we are able to hedge our bets and guarantee that we will be invested in those countries that are leading the way. Many investors believe they are being diversified when they invest in S&P 500 - when in fact that index includes only large US companies. As you can see from the map of the world below, the US represents just 50% of the global equity pie.

map.PNG

By diversifying your portfolio not only reduce your risk but historically this has been a means to also generate additional return. The chart below compares a globally diversified portfolio to the S&P 500. As you can see, global diversification resulted in a significantly higher return over the long-term.

So as tempting as it might be to go all in on the US winning the 2022 World Cup in Qatar, which we advocate taking a measured approach and hedging your bets!

global balanced equity strategy.PNG

Sincerely,

DAVIDSON CAPITAL
Stanley P. Dyl
Managing Director
July 9, 2018
 
 

Market Summary

Index Returns

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