Finding Alpha

Where to Look for Returns?

With the market now firmly in bear territory, investors will have to look harder for strong risk-adjusted returns in the coming years.

Employing global strategies at the core of the portfolio can help investors generate the returns they need by broadening the available opportunity set and providing flexibility to allocate capital to the best performing markets.

At a country level, the best performing equity market in almost every year can be found outside North America.

Top Five Market Indexes by Annual Return, 2014-2019

2014 2015 2016 2017 2018 2019
Israel
37.64%
Hungary
51.96%
Egypt
104.84%
Argentina
73.46%
Qatar
30.68%
Greece
45.79%
Egypt
33.08%
Denmark
38.89%
Peru
55.61%
China
55.04%
Saudi
Arabia
19.16%
Ireland
40.00%
Saudi
Arabia
31.37%
Ireland
29.76%
Pakistan
39.93%
Turkey
49.91%
Russia
16.69%
Russia
37.54%
Turkey
29.56%
Belgium
24.87%
Brazil
36.76%
Austria
39.05%
Brazil
16.27%
New
Zealand
37.36%
Indonesia
29.46%
Russia
21.96%
Hungary
36.27%
Peru
38.39%
U.S.
3.51%
Netherlands
34.28%

Source: Morningstar Direct. Annual Country returns represented by MSCI Country Indexes in CAD. Top 5 countries as represented in MSCI ACWI. The MSCI ACWI captures large and mid cap representation across 23 Developed Markets (DM) and 26 Emerging Markets (EM) countries. For Illustrative Purposes Only. You cannot invest directly into an index.

 

There is evidence that in a globally diversified portfolio, country selection provides a significant source of alpha generation, even though economic integration and globalization have reshaped the global economy.

 

Proportion of returns explained by country, sector and company effects within MSCI Emerging Markets Index

Source: Internal Research, AGF Investments Inc./Highstreet Asset Management Inc., as of October 31, 2019. Based on rolling 12-month average returns.

 

And with signs of globalization peaking, markets will increasingly decouple from one another, and returns between global markets will diverge further. This means that a well-diversified global portfolio could be a solution to finding returns in all market environments.

 

3-year Rolling Correlations to S&P/TSX

Source: Morningstar, as of March 31, 2020.

A global approach can also be beneficial to investors who wish to employ a fundamental high-conviction strategy alongside their diversified core. Market-leading companies are increasingly found all over the world, with leadership determined by innovation and the macro environment.

 

Going Global for Income

A global approach can help investors who are searching for income, as well as those seeking capital growth.

In the fixed income markets, generating yield from developed market holdings continues to be a challenge, meaning investors must look further in to global markets, including emerging markets, for income:

10-year Government Bond Yields, 2010 – 2020

Source: Bloomberg, as of March 31, 2020.


Following the recent downturn, it is likely that interest rates, especially in developed markets, will remain lower for longer. To maximize yield potential in this environment, an active, globally diversified approach to fixed income taking in multiple sectors may be increasingly necessary.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Real
Return
11.09%
Real
Return
18.35%
Global HY
Bonds
16.96%
Conv.
Bonds
24.70%
U.S.
Bonds
15.52%
Conv.
Bonds
21.58%
Global HY
Bonds
10.32%
Conv.
Bonds
8.43%
FR Loans
9.49%
CAN
Corp.
Bonds
08.05%
Global HY
Bonds
8.83%
U.S.
Bonds
10.51%
EM
Bonds
15.33%
Global HY
Bonds
14.53%
EM
Bonds
14.20%
EM
Bonds
21.47%
FR Loans
6.35%
CAN
Corp.
Bonds
3.38%
U.S.
Bonds
9.02%
Real
Return
8.02
CAN
Corp.
Bonds
7.34%
CAN
Gov't
Bonds
10.20%
Conv.
Bonds
10.06%
FR Loans
12.35%
Real
Return
13.18%
U.S.
Bonds
20.59%
EM Bonds
6.08%
Global HY
Bonds
3.18%
DM
Bonds
8.73%
Conv.
Bonds
7.91%
EM
Bonds
6.95%
EM
Bonds
9.62%
FR Loans
7.23%
U.S.
Bonds
4.55%
Conv.
Bonds
12.96%
FR Loans
19.11%
CAN
Corp.
Bonds
3.73%
CAN
Gov't
Bonds
2.18%
Conv.
Bonds
7.75%
EM Bonds
7.39%
CAN
Gov't
Bonds
6.51%
CAN
Corp.
Bonds
8.24%
CAN
Corp.
Bonds
6.22%
EM
Bonds
2.31%
FR Loans
10.75%
Global HY
Bonds
16.67%
Conv.
Bonds
3.49%
EM
Bonds
1.06%
EM
Bonds
6.33%
Global HY
Bonds
6.87%

Source: Morningstar, as of March 31, 2020. All returns in CAD Based on calendar year returns. For Illustrative Purposes Only. You cannot invest directly into an index.

Our website uses cookies to help you get the best experience. Please Accept or click Edit to control your settings.