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Recent Market Returns Analysis

A simple return attribution model is used to parse market returns over various time frames.

Did you know that from the US equity market low at the end of February 2009 to December 31, 2013, the S&P 500 (in US dollars) has generated a total return of 178.9% or 23.6% annuallized? While 2.3% annually has come from dividends, and 5.1% has come from nominal dividend growth, dividend revaluation has generated returns of 15.1% annualized, or 64% of the total, as yields have fallen from 3.8% to 1.9%.

Background information is here, and further analysis is here.


Research articles and short essays

Several longer articles are published here, usually in response to important market events or ongoing questions and discussions. Chart Essays are short essays based on a chart or graph of interest, used to` explain an investment concept or to discuss a market issue.

  • Longer Articles

  • Chart Essays
Three articles on global equity diversification and risk reduction: March 10, March 20 and March 27, 2009

Part 1: Has Global Equity Diversification Failed?

Part 2: Has the Risk Character of Equities Changed?

Part 3: Correlation and Risk

  • Part 1 suggests that the market declines in 2008 did not show that global diversification has failed. After discussing the concept of diversification, it is suggested that investors got what they implied they wanted when they diversified equities globally: they obtained exposure to the global equity market factor. Rather than blaming the "failure of diversification" for terrible performance, investors should properly allocate blame to their overly bullish equity forecasts, and consequently to their overly high allocations to equities.
  • Part 2 tackles the question: have the risk characteristics of global equities changed? In particular, have the huge equity declines been larger, and hence realized equity risks more severe, than investors could have reasonably expected? It turns out that from the perspective of annual and monthly data, the realized risks are not outside the bounds of experience or reasonable expectations.  However, with daily returns we will see much stronger evidence of unexpected risk levels.
  • Part 3 picks up on an issue related to the concept of diversification, that expected risk reduction is an important function of imperfect correlations between underlying securities.  There is a widely held view that correlations between equity markets have been very high (and certainly higher than normal) during 2008 and early 2009.  If this is true, it would suggest that overall levels of risk are higher globally than in previous periods of lower correlations. 
Article: December 9, 2008

The U.S Equity Market: A Sober Appraisal.

This article was written as an antidote to "early optimism" as investors looked for an equity market bottom in November, 2008. A longer-term valuation perspective was developed, using Schiller's long-term real P/E ratio. While equities certainly looked more attractive by the end of November, 2008, there was still reason to believe that the market downturn could continue.

Chart Essay #1: January 2009

Commodity Returns from a Canadian Perspective

Or, What You Saw Might Not Be What You Got!

This essay shows the dramatic effect that currency exposures can have on your portfolio returns. Investors must be aware of this, and must monitor the returns to their foreign investments in their home currencies.

Chart Essay #2: January 2009

Foreign Asset Returns for Canadian Investors,

Or, How To Get What You Were Hoping For

This essay shows another example of how foreign currency exposures can affect your investment returns, and shows the impact of using currency hedging to offset some of the effects of currency exposure.

Chart Essay #3: February 2009

The Impact of Dividends and Inflation on Total Equity Returns

This essay looks at the impact of dividends over the long term, using US equity market history. The concept of total return versus price return are introduced, the impact of inflation on returns is examined, and the concept of real return — return after inflation — is introduced.

Chart Essay #4: March 2009

Cross Asset Diversification

Or, How Diversification Might Have Helped You!

This essay illustrates how diversification across asset classes — psecifically adding bonds to your portfolio — could have cushioned recent volatility in equity markets.

Structured Capital presents a book by Tim Appelt:

How do you get THERE from HERE?
Learning and Playing the Long-term Investment Game

frontcoverHistorical analysis of long-term global equity and bond returns is used to develop an analytical framework for a historical attribution of returns. In turn this attribution approach is used to develop expectations of future returns that acknowledge the past but take into account current market conditions.

Further information: