What If We Treated World Equities like a Hedge Fund

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How bad must things have been that the asset class up nearly 20% YTD is just now on the verge of breaking out of a decade long drawdown? That’s right, despite being the best-performing asset class thus far in 2017 – the MSCI World Stock Index ex U.S. is just a hair’s breath above the highs last seen just before the 2007-2008 financial crisis (see blue line).

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World Stocks All Time Highs(Disclaimer: Past performance is not necessarily indicative of future results)

World stocks have been anything but a favorite asset class the past few years, even with the tick up in performance over the past 12 months. And you can see why. We’re talking about a -58% drawdown at its valley and a stunning 117 months without making a new high combining together to result in 16% annualized volatility with just a 3.38% compound annual rate of return.

Total Return: 117%
Compound RoR: 3.36%
Volatility: 16.01%
Max DD: -58.16%

Now, if investors in the alternative investment space saw these kinds of stats from a hedge fund or Liquid Alts program, there’d certainly be questions about their inability to manage risk and find ways to beat the S&P 500. Indeed, if this were an investment program,  it would have likely closed up shop, being dogged as another Hedge Fund Failure. But alas, we are talking the favored son equity asset class here, so it’s not too surprising that world stocks are being touted lately for having faster returns than even the unstoppable U.S. Stock market.

As you would expect, there’s an ETF for that… but the ETF has lagged the index by quite a bit, failing to make new equity highs itself after an ill timed launch in 2007.

World Stocks Max DD(Disclaimer: Past performance is not necessarily indicative of future results)

The entire time this product has been available for investors – it’s been in a drawdown. Yet there’s still $2.67 billion of investor money in it. We realize that it’s different than a hedge fund, that it’s designed to give a specific type of exposure, but still – a decade long drawdown and some problems tracking the underlying index. Go ahead and get excited about world stocks breaking out, but check world stocks long term return and volatility profile before getting too carried away chasing this performance.


The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

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