Periodic Table of Investment Returns: Emerging Markets 2002 Thru 2016

The following chart is the Periodic Table of Investment Returns for select Emerging Markets from 2002 thru 2016. This is a followup post to the developed markets chart I posted earlier.

Click to enlarge

Source: Novel Investor

For an interactive version of the above chart please go here.

Related: Review: The Callan Periodic Table of Investment Returns 2015

What Drives Investment Success For A Long-Term Investor?

Investor biases and behavior are two of the important factors that determine success with long-term investing in the equity markets. Biases can be of many types such as home bias, recency bias, etc. Biases lead to behavior that can be damaging to an investor in terms of returns. For example, irrational behavior such as selling out when markets crash is usually not a wise move.

I came across an interesting article recently that discussed about some of the issues with investor behavior and how it affects their success with investments. From the article:

Heads or tails?

If a fair coin is tossed 10 times in a row and lands heads for each of the tosses, what would your choice be for the 11th toss? Many would guess heads, assuming that the current trend will continue. Others may choose tails believing that the trend must buck. But what has actually changed between the 1st and the 11th toss? Nothing – statistically there is still a 50% probability that it would land either heads or tails. So why favour one over the other?

When presented with information we interpret it according to our own biases, and then react to the information. Most of us are prone to drawing overly-strong inferences from previous, and especially recent, events or trends. The information during the first 10 tosses of the coin is irrelevant, as it has no bearing on the 11th toss – there is still a 50% probability of landing on heads or tails.

Now let’s consider a second example

You have an opaque bag containing 50 black and 50 white marbles and you have to remove marbles one at a time without replacing them. There would be a 50% probability of selecting a black marble on your first go. If you had just removed 10 black marbles in a row, what would your guess be for the 11th go?

Most of us should select ’white’ because there is a higher probability of selecting a white marble than a black one – the odds moved from a 50% probability on the first attempt to a 56% (50/90) probability of white on the 11th attempt. Unlike the coin toss example, the information presented between removing the 1st marble and 10th marble is extremely relevant in guiding our choice for the 11th attempt.

We are presented with a lot of information on a daily basis from which we have to make decisions. Fortunately our minds make things easier for us by using efficient thinking strategies known as ‘heuristics’ – mental shortcuts that help us make decisions and judgements quickly without having to spend a significant amount of time analysing the information. Mostly, heuristics allow us to respond rationally and effectively – like avoiding a pothole in the road. However, heuristics can also lead to errors in judgement, as we see from the coin toss example. Psychologists and behavioural scientists who have studied heuristics have categorised over 100 behavioural biases which lead to errors in judgement and irrational decision-making, including, over-extrapolation, anchoring (the tendency to rely too heavily on one piece of information), overconfidence, fear, greed and confirmation bias (the tendency to search for new information that supports one’s beliefs), to name a few.

These biases influence our success as investors

As we have discussed in previous articles, investor behaviour is a key determinant of investment success over time. Investor behaviour is driven by the psychological traps, triggers, and mistaken beliefs – because of over-weighting irrelevant information – that cause us to act irrationally and destroy wealth. (emphasis mine)

Source: How to be a better long-term investor by Shaeed Mohamed, Allan Gray

The entire piece is worth a read.

Periodic Table of Investment Returns: Developed Markets 2002 Thru 2016

One of the key factors for success in equity investing is diversification. This strategy allows an investor to reduce volatility in a portfolio during adverse market conditions and helps smooth out returns over many years.

I recently across the following Periodic Table of Investment Returns Chart showing the annual MSCI Total Returns of select developed markets from 2002 thru 2016:

Click to enlarge

Source: Novel Investor

Last year, Canada was the top performer with a return of over 25% in US dollar terms and Italy was the worst performer.

For an interactive version of the above chart please go here.

Related: Review: The Callan Periodic Table of Investment Returns 2015

Foreign S&P Dividend Aristocrats Could Produce Higher Total Returns Than Their US Peers

In an article earlier this week, I wrote why foreign stocks may be better for a Dividend Growth Strategy than US stocks. In this post, let us discuss how investing in foreign stocks with dividend aristocrats could increase diversification and potentially offer higher total returns as well in addition to better dividend growth according to a report by S&P.

From the S&P report:

Compared to S&P Dividend Aristocrats Indices in international markets, the S&P High Yield Dividend Aristocrats has provided outperformance in terms of total return over the past 1-, 3-, 5-, and 10-year periods (see Exhibit 13). Nevertheless, there have been several long periods when international stocks outperformed U.S. stocks. For example, from 2002 to 2007, Pan Asia, Canada, and global markets outperformed the S&P High Yield Dividend Aristocrats. Pan Asia did well from 2009 to 2012. Japan did well from 2013 to 2015 (see Exhibit 14).


Source: A Case for Dividend Growth Strategies, S&P Global

This is not surprising since higher base dividend yields and higher dividend growth annually could lead to higher total returns.

Some of the constituents in the S&P Euro High Yield Dividend Aristocrats are: Total SA (TOT), Siemens AG (SIEGY), Muenchener Rueckversicherungs-Gesellschaft AG (MURGY), etc.

Disclosure: No positions

Knowledge is Power: Investing Lessons, World Disorder, British Bond Proxies Edition

Atlanta Airport

Earlier:  Knowledge is Power: Canadian Charts, American Tragedy ?, New Dividend Strategy Edition

U.S. Equity Sector Periodic Table Of Annual Total Returns 1992-2016

The Callan Periodic Table of Investment Returns for 2016 is not out yet. While we wait for the latest update, the chart for 2015 provides many valuable insights. Similar to the popular Callan chart, there are many types of charts are also online. Recently Fidelity published an interesting chart called a periodic table of annual total returns for US equity sectors in a U.S. Equity Sector 2017 Outlook Report.

U.S. Equity Sector Periodic Table Of Annual Total Returns 1992-2016:

Click to enlarge

Note: The 2016 returns noted above are year-to-date returns through Oct 31, 2016.

Source: U.S. Equity Sector 2017 Outlook Report, Fidelity

A few observations:

  • Utility stocks have performed extremely well during the period shown. For most of the years they have returned a positive total return. Even in 2008 when US markets crashed, the sector was down only 15%. Since then each year they have had a solid performance. This shows that investors cannot go wrong holding US utilities.
  • While REITs also declined heavily in 2008, they have recovered strongly in the following years.
  • The Energy sector tend to be volatile as prices of crude oil and natural gas are always unpredictable. So even in terms of total returns, their annual performance varies wildly year-over-year.
  • Overall this chart shows the importance of diversification among various sectors. For example, when financials fell by 55% in 2008 during the Global Financial Crisis (GFC), US utilities declined by only 15%. Hence portfolio volatility can be reduced greatly by distributing one’s assets among various sectors.