[ Ссылка ] - impartial information on the benefits of low-cost, long-term and highly diversified investing
In this video blog for Sensible Investing, Robin Powell asks Professor Paul Marsh from London Business School what we can learn about investing in emerging markets from studying historical market data.
Transcript:
Hello again. Emerging markets aren't exactly flavour of the month.
They've been on a downward trajectory since mid-2011.
And in recent months there's been no shortage of reasons to be fearful.
We've had a currency crisis in Argentina; weaker economic data from China; political unrest in Turkey and Thailand; and of course a revolution in Ukraine.
On top of all that, the on-going uncertainty over plans by the Federal Reserve in the US to wind down its quantitative easing strategy is only adding to the uncertainty.
Last time we heard from Professor Paul Marsh about the benefits of having a long-term view of emerging markets.
Professor Marsh is one of three authors of the Credit Suisse Global Investment Returns Yearbook, which contains market data spanning 114 years and 25 countries.
For this year's edition of the Yearbook, he's conducted specific research on emerging markets.
Despite two-and-a-half years of disappointing returns, and warnings of further turmoil to come, Professor Marsh says history teaches us that now is not the time to lose faith in the emerging markets sector.
"From around about 2000 through to 2010 there was euphoria about emerging markets. Everybody wanted to be in emerging markets. You then have two or three years of poor performance from emerging markets and everybody is writing them off. I think we are just overly influenced by very recent performance and we shouldn´t be. We should take a long-term view and we should recognise that emerging markets are likely over the future to actually deliver a risk premium."
Yes, emerging markets are riskier than developed ones. But, over the long term, as long as you're patient enough to ride out inevitable periods of volatility, you can expect a higher return.
So, how much higher?
"You should not expect to shoot the lights out: you might get lucky, you might not. Roughly we would say 1,5% p.a. more from emerging than from developed markets over the long-run -- and one should think long-run when one looks at emerging markets, or indeed at any investment."
Now, that might not sound much but, over time, with the benefit of compounding, it should make a significant difference to the eventual size of your portfolio.
Of course, another reason why people invest in emerging markets is that they want to diversify.
As emerging markets mature, they tend to correlate more closely with developed ones. That makes them less effective as a diversifier.
So, I asked Professor Marsh, is still worth investing in emerging markets as a way of spreading your risk?
"Yes, it is. You still get useful diversification if you are a developed market investor from investing in emerging markets. You get even more value, in terms of diversification, if you are an emerging market investor from China or India or Brazil; if you invest in developed markets or even diversify into other emerging markets."
That's almost it for now.
Next time, we'll conclude our look at emerging markets by asking Professor Marsh whether there are any particular trading strategies he would recommend.
Be sure to watch, because his findings are fascinating.
Thanks for watching.
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