Why do we diversify geographically?

Nader Hamid, Portfolio Manager with TWM Group at iA Private Wealth presents our Chart of the Month. You can also see this video in French presented by Jean Hénault by clicking here

This month our graphic ranks the performance of major geographic asset classes, including bonds, on a year-to-year basis since 2008 by order of return.

TWM Group - Chart of the Month - geographic diversification

Let’s start by looking at bonds in 2008, the Great Recession year. They were by far the best performer with a return of +7%. During the 2009 recovery, bonds were the worst performer delivering 5%, only to make a comeback in 2011 as the best performing asset class with a 10% return.

Interestingly, in 2018 a year of global stock market corrections, bonds were again among the best performing asset classes with a positive 1% return. The US market, hedge to the Canadian dollar, finished second in 2008 with a drawdown of 24%. Then it had three very good years in a row: in 2013, 2014 and 2015.

International markets were in the third position in 2008 and 2009, with -29% and -12% returns, respectively. Then, in 2018, at -6%.

Our Canadian stocks lost 33% in 2008. However, they had the best performing stock market in the developed world in the two years that followed: 35% and 18% in 2009 and 2010, respectively. They finished with a -9% rate of return last year.

And lastly, emerging markets dropped a whopping 42% but were back at the top of the list in 2009 with a 54% gain. Then back on top in 2012 with 16% and then recently, in 2017, with a 28% return.

The Key Takeaway?

It’s impossible to predict winners and losers from one year to the next, especially when the worst performers one year are sometimes the best performers the next. This highlights the importance of being diversified geographically.

On behalf of TWM Group, thank you for watching our Chart of the Month. See you next time.

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