A World Less Free: Infographic

Democracy is declining in many countries of the world according to a new report by Freedom House. The authors of report note that global freedom is on the decline for the 15th consecutive year.

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Source: RFE/RL Infographic

The chart above shows most of the world is either is not free or partly free.

Over the past decade the US also has experienced a decline in democracy score of 11 points. Some of the reasons for this decline are listed in the graphic below.



Source: Freedom in the World 2021, Democracy under Siege, Freedom House



On the Long Term Return of the UK Stock Market

The UK equity market is one of the best markets for income-seeking and long-term investors. In the universe of international stocks, UK stocks are traditionally known for their high dividend yields. In addition, like other developed markets, British stocks also perform well in the long run measured in years or decades. The following chart shows the long-term total return from 1985 to 2020 for FTSE All Share Index. This index consists of the FTSE 100, 250 and the Small Cap Index for a total of about 600 of the largest companies in the UK market.

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Source: ”The Folklore of the Market” – investing lessons from the 1950s, Hargreaves Lansdown

From the above article:

In the long run (1985-2020) the UK stock market has given investors a total return of a little under 9% a year. Sometimes you might invest in a company or fund that does better than that. Sometimes it will do worse. 9% a year isn’t bad going though, even if future returns might be less generous. Remember that nothing is guaranteed and you could get back less than you invest.

The FTSE All Share Index had a dividend yield of 3.57% as of Dec 31, 2020. The FTSE 100’s dividend yield was even better at 3.77%.  This rate is about double that of the yield for the S&P 500. The dividend yield of the S&P 500 is usually under 2%.  The high yield on the FTSE 100 can lead to astonishing returns over the run. The chart below shows the wide gap in returns between the FTSE 100 Price Return and Total Return from 1986 thru early 2020.

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Source: This is Money

The key takeaways are: investing for the long-term can produce excellent returns and high dividends can earn a better total returns than just price returns.


Comparing the Growth of Wealth for 10 Largest US Tech Stocks

The technology sector has performed extremely well in the past few years up until the end of 2020. However not all stocks within the sector have been winners. In order to have accumulated fabulous wealth with tech stocks it was necessary to be invested in the right stocks. For instance, an investor who owned tech giants IBM(IBM), Oracle (ORCL) or Cisco(CSCO) from Jan 2013 thru November would have earned average returns relative to the wealth generated by stocks like Amazon(AMZN), Microsoft(MSFT) or Apple(AAPL) in the same period. The following chart shows the stark difference in returns:

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Exhibit 3: Growth of wealth for 10 largest US technology stocks

Source: FANMAG: Because FAANGs are so yesterday, Ishan Ghosh PhD, Dimensional Fund Advisors via Firstlinks, Australia

From the above article:

Exhibit 3 shows the hypothetical growth of wealth for an investor who put $1 in each of the 10 largest technology stocks and the US market in January 2013. While the $1 invested in Amazon and Apple, for example, would have grown to $12.63 and $7.18, respectively, by November 2020, the returns of their non-FANMAG tech contemporaries would have failed to even surpass the US market.

While the performance of the above tech stocks have been great, large US firms have done even better in the past. Their contribution to the return of the overall US market was even higher than tech stocks like Microsoft and Apple. Below is another excerpt from the piece:

Large US companies have done even better in the past

A defining trait of the FANMAG performance is that these outsize returns have come from among the largest companies in the US, implying they were meaningful contributors to the overall US market’s return. However, historical data show that this too is nothing new.

Defining a stock’s return contribution as its total return weighted by its beginning-of-period market capitalization weight, we see that Apple’s contribution to the US market for the period 2013–2020 was 19.68%.

How does this figure compare to other top return contributors? Exhibit 5 illustrates the top return contribution and the annualized US market return over rolling eight-year periods since 1927, revealing instances of return contributions by the likes of AT&T, General Motors, and General Electric that were comparable to, or even exceeded, that of Apple in 2013–2020.

Exhibit 5: Key contributors

Oil major Exxon Mobil’s (XOM) glorious days lasted from 1999 to 2012 as shown in the chart above. Similarly Detroit auto maker General Motors(GM) was a top contributor to the market’s return in the 1940s and 50s. Nowadays it is more of an also-ran company making average cars. Few years ago the market even dubbed it the “Government Motors” when Uncle Sam had to bail them out from total collapse.

Disclosure: No Positions

The Case For Diversification Across Asset Classes: Chart

Diversification is one of the simplest way to achieve success with investing in the equity markets. Diversification works especially in the long run since different assets perform differently even during the same economic conditions. At a global level, emerging markets may have a great due to local and other factors while developed markets may underperform. So the key is to diversify one’s portfolio with many asset classes so one can benefit from the difference in returns.

The following chart shows the importance of diversification across asset classes thru 2020:

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Source: Russell Investments

US large caps stocks were the top performers in both 2019 and 2020 with double digit returns. In the 10 years ending in 2020 also, US large caps were the winners with a growth of 14%. However over a 20 year period Emerging market stocks outperformed American large company stocks.

With the exception of 2019 and 2020, no asset class was a consistent top performer year after year. Commodities were the worst performers both in the 20-year and 10-year periods ending in 2020.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • S&P MidCap 400 SPDR ETF (MDY)
  • SPDR S&P Dividend ETF (SDY)
  • iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
  • Vanguard Total Bond Market ETF (BND)
  • Vanguard MSCI Emerging Markets ETF (VWO)
  • iShares MSCI Emerging Markets ETF (EEM)

Disclosure: No Positions