S&P 500 vs. FTSE 100 Returns

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Reinvestment of dividends can enhance the return of an equity investment. Instead of simply focusing on price returns only investors should focus on the total return of an investment which includes price return plus dividend reinvestment return.

Over the past decade, UK’s FTSE 100 has consistently beaten the S&P 500. The FTSE 100 has had a total return of 171.87% compared to just 89.12% for the S&P 500 in British Pound terms according to a report in FE Trustnet.

However just looking at price charts will give misleading results. In the 10-year and 5 year charts below, the S&P 500(in blue) was ahead of FTSE 100 in US $ terms. But this is only based on price return. When reinvestment of dividends is included the charts will look entirely different with the FTSE beating the S&P by a wide margin. This is because the dividend yield on the S&P 500 is around 2% whereas the FTSE 100 has a much higher yield as British firms traditionally have higher payouts than US firms.

S&P 500 vs. FTSE 100 – 5 Year Return:

Click to enlagre

SP500-vs-FTSE100-5-Years-1

Source: Yahoo Finance

S&P 500 vs. FTSE 100 – 10 Year Return:

SP500-vs-FTSE100-10-Years-2

Source: Google Finance

 

Source:  “Lost decade” a myth for equity income investors,  FE Trustnet

Related ETFs:

iShares MSCI United Kingdom Index (EWU)
SPDR S&P 500 ETF (SPY)

Disclosure: No Positions

U.S. Unemployment Rate Since 1948

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The U.S. unemployment rate stood at 7.9% in January this year. This rate has not changed much since September of 2012. Based on this official figure, currently there 12.3 million unemployed individuals in the country. The actual unemployment rate is much higher since the official rate drops out many unemployed persons such as those that stopped looking for work.

The labor-force participation rate was just 63.6% in January. The number of long-term unemployed (those jobless for 27 weeks or more) was about unchanged at 4.7 million and accounted for 38.1 % of the unemployed according to BLS data.

Here is a chart showing the U.S. unemployment rate by month since 1948:

Click to enlarge

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Source:  U.S. Bureau of Labor Statistics

At the height of the global financial crisis in 2009, the rate reached 10%. Though the unemployment rate has slowly declined it is still stubbornly high at over 8.0%. The rate exceeded 10% during the 1980s as shown in the chart above.

Breakdown of an Apple iPhone 5 Component Costs

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Apple(APPL) has sold millions of its famous iPhone over the years with the most recent model iPhone 5 selling like hotcakes late last year although sales volumes was not as great as expected. In China, the company sold over 2 million units in the first weekend alone.

The iPhone 5 was designed in the U.S. just like so many other Apple products but assembled in China. However assembly costs account for only 4% of the total cost of an iPhone 5. The various components of an unit come from different countries as shown in the chart below. In fact, by one study 90% of a phone’s components are from countries outside of the U.S. Apple’s iPhone 5 is also a representation of the success the globalization and the East Asian electronics production chain.

iPhone 5 Component Costs by Supplier Headquarters Location and China Assembly Cost:

Click to enlarge

Apple-iPhone 5-Component-Costs-Split

Source: DHL Global Connectedness Index (GCI), DHL

Update:

Global iPhone Supply Chain

Source: The Hindu BusinessLine

Disclosure: No Positions

The Top 4 Greek Yogurt Brands

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Greek yogurt was introduced to the U.S. market 15 years ago by Fage, the Athens-based privately-held yogurt company according to a recent article in Bloomberg BusinessWeek. Since then Greek yogurt held a small share of the multi-billion dollar yogurt market in the country. However in the past few years that has changed with consumers buying Greek yogurt more and more as they became health-consicous. In addition, the success of Chobani, a new Greek yogurt brand founded by Turkish immigrant Hamdi Ulukaya has made Greek yogurt a household product today. From working moms to high school teenagers to senior citizens, Greek yogurt has become a modern-day craze.

From At Chobani, the Turkish King of Greek Yogurt in Bloomberg BusinessWeek:

Chobani has made Ulukaya a billionaire, according to Bloomberg data. Five years ago Chobani had almost no revenue. This year, the company will sell more than $1 billion worth of yogurt, says Ulukaya, who’s the sole owner. Once a niche business, Greek yogurt now accounts for 36 percent of the $6.5 billion in total U.S. yogurt sales, according to investment firmAllianceBernstein (AB). Upstate New York, with its 28 plants owned by Chobani, Fage, Yoplait maker General Mills (GIS), and others, has become something like the Silicon Valley of yogurt.

The Top Four Greek Yogurt Brands in the U.S. are shown in the chart below:

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Source: At Chobani, the Turkish King of Greek Yogurt in Bloomberg BusinessWeek

Fage is a private company based in Greece and sells its products in many countries including the US, Greece, Italy and Germany.

Yoplait Greek brand is owned by General Mills (GIS). France-based Danone SA(DANOY) owns the Dannon brand. It is truly amazing to see that Chobani now holds 40% of the market share.

Disclosure: Long GIS

Does International Diversification Work?

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Diversification is an important factor to consider when investing in foreign stocks . An investor can diversify based on a specific theme or types of markets such as emerging, frontier,  developed, etc. It is better to diversify between different markets and then different countries within those markets.  It is not a wise idea to invest all the assets allocated for foreign stocks in one type of market or a theme. Diversification between countries not only reduces many risks but also offers potential to enhance returns as one country’s economy may grow faster than the other.In addition, a few countries may not perform well as projected.

During the global financial crisis of 2008-09, international diversification seemed to be pointless as all markets plunged in lock step.It did not matter if an investor diversified across emerging and developed markets.The benefits of diversification across different markets or even asset classes seemed to be dead. At that time many articles appeared praising the idea of just investing in domestic companies and authors advised readers not to bother with going abroad in search of better investment opportunities. Some even suggested that investing in foreign markets was not necessary as many American companies earn a substantial part of their earnings from abroad.Those suggestions couldn’t be more wrong when considering returns in the long term.

In this post let me show the benefits of international diversification using the S&P 500 against select emerging and developed indices.

a)The following chart shows the 5-year returns of S&P 500 against the benchmark indices of three large Latin American economies:

Click to enlarge

SP500-vs-Latin-Indices

 

Chile’s IPSA index (brown) outperformed the S&P 500(blue) by a wide margin in the past five years. Brazil’s Bovespa(red) has lagged not only the U.S. market but also the Chilean and Mexican markets. Once considered a must-own market, Brazil has lost its shine in recent years. Mexico’s IPC index(green) has slightly performed better than the S&p 500.  The key takeaway from this review is that certain emerging markets performed differently than U.S. markets and that one can achieve higher returns by diversifying among emerging markets. An investor who invested only in Brazil would have earned lower returns than someone who diversified their emerging markets allocation among Brazil, Chile and Mexico. Hence the benefit of international diversification cannot be understated. An investor who ignored Chile and just stayed with U.S. domestic equities would have missed the excellent returns from Chilean stocks.

b)The following chart shows the 5-year returns of S&P 500 against select developed European indices:

SP5000-vs-Select-European-indices

Germany’s DAX(green) has outperformed the FTSE 100(brown) and CAC 40(red) indices in the period shown. With Europe’s largest economy, Germany was less severely impacted by the European sovereign debt crisis of the past few years relative to other European countries.Compared to Germany, France  has performed poorly since the March lows of 2009 due to the European debt crisis and many issues in the domestic economy. It is interesting to note that Germany’s DAX has closely followed the S&P 500. As with the emerging markets example discussed above, an investor with exposure to just French equities would have had lower returns than someone with diversified exposure to France, UK and Germany. This analysis shows that there is considerable differences in the performance of different developed equity markets.

The key takeaway from the above discussion is that the benefits of global diversification is alive and well. Investors should diversify their overseas allocations between many countries and market types. A good split between emerging and developed markets with an added measure of a little frontier market exposure will help juice up the overall returns of a portfolio. Global diversification also reduces the effects of the various risks with investing in foreign countries such as political risk, currency risk, concentration risk,  etc.

Source: Yahoo Finance

Related ETFs:

iShares MSCI Germany Index Fund (EWG)
iShares MSCI Brazil Index Fund (EWZ)
SPDR S&P 500 ETF (SPY)
iShares MSCI France Index Fund (EWQ)
iShares MSCI Chile Capped Investable Market  Fund(ECH)
iShares MSCI Mexico Capped Investable Market Index Fund (EWW)
iShares MSCI United Kingdom Index Fund (EWU)

Diclosute: No Positions