Great op ed article by Jerry Bowyer at Forbes called When Investing, Pay Close Attention To Country Over Company examining the relative importance of country indices over sector or stock indices for the period 1989 to last Fall. Here’s the method:
Lattice Strategies compared portfolios consisting of: a range of country stock indices weighted by capitalization; the same countries weighted equally, a broad range of countries’ stock weighted by sector; the S&P 500, the S&P 500 weighted by sectors and the S&P 500 with each stock weighted equally.
The findings point to the equally weighted country index (in red) being the clear winner:
The equally weighted country index was the clear outlier, demonstrating that at least as far as this time period shows (the only one with comprehensive individual country data available), greater value would have been added (or potentially subtracted) by deviating from index country weights than by deviating from index sector or stock weights. One thousand dollars invested in equal weightings of the country indices becomes almost five thousand dollars as of last fall, while the S&P would put you closer to fifteen hundred. Equal weighting of S&P stocks gets you closer to two thousand.
The evidence seems quite clear. Countries matter – a lot.