S&P500 vs All World ETF

[kellip171]

@janetmal you referenced a saying about stock markets not correlative or indicative of economies. that implies there must be some measure of goodness of both, to prove (or disprove) the statement. what do poor or great economics mean to you?

at its very fundamental, you own a business to reap its performance. the profits a business generates is distributed directly to its owners, or is put back into the business and embedded in its value.....which is reflected in the ownership stake.

stock price ~= performance vs expectation is a very narrow short-sighted view.

 

[janetmal]

@kellip171

what do poor or great economics mean to you?

GDP growth is the standard measure used by most economists as far as I'm aware.

Let's keep it to one topic at a time.

 

[kellip171]

@janetmal Okay, here's the 1 original question:

What are examples of countries with poor GDP growth but high stock market growth and vice versa, over an appropriate multi-year investment horizon

 

[janetmal]

@kellip171 I don't know what an "appropriate multi-year investment horizon" is, but I'll take 30 years since this is more or less the longest I can easily find data for.

1. The GDP of China has grown with roughly 13.2% CAGR in the last 30 years and the MSCI China index has had a 1.8% CAGR in the same period.
2. The GDP of South Africa has grown with roughly 3.4% CAGR in the last 30 years and the MSCI South Africa index has had a 6.8% CAGR in the same period.

(All CAGRs are nominal, GDP data is from the World Bank, and index data is directly from MSCI)

But these are just two data points, for a systematic approach you can read the paper "Is Economic Growth Good for Investors?" by Jay Ritter. Figure 1 is a nice summary of the results.

 

[kellip171]

@janetmal (Ignoring the fact that MSCI’s China Index was launched only 22 years ago…)

Great, 2 data points. Now would you like to add a few more than 2 of the ~200 countries in thr world on the GDP vs Index scatter, and tell us how they trend?

In this thread, you’ve made these 2 claims:

• the aggregate valuation of the enterprises that generate most of the economic activity in a country…dont actually reflect the measure of that countries economic activity

But

• they reflect results vs prior expectations…as revealed 4 occasions a year

And you dont see a problem with that?

 

[janetmal]

@kellip171 If you go to the MSCI website that provides index data (here), you wil find data for the MSCI China index going back to December 31st, 1992. MSCI always provides backtested data for dates even before its indices are launched.

Data points for many more countries are in the paper I linked, as I explicitly wrote in my post (I even wrote "but these are just two data points" myself). If you can't access the paper, there's a free preprint version here.

I have not made any claims about the aggregate valuation of enterprises, I have made claims about stock market returns. The aggregate valuation of enterprises can go up even with zero (or negative) returns simply because of new listings on the stock market.

Since you're not actually looking at the sources I use/provide and I don't feel that you are discussing in good faith, I will stop here. Hopefully this discussion is useful for someone anyway.

 

[firewolf1960]

@justiceformyfoot I guess 70% of all-world is US stocks anyways, therefore I don't think there is a HUGE difference. Check your broker, and pick the one with lower fees.

 

[resjudicata]

@justiceformyfoot If you look at the chart of aex, s&p, vwce and iwda for the last 5y, they all look similar. I don't think it matters that much.
I have an aex tracker. Will probably buy s&p also. Just to have a bit more diversification.

 

[johanmichel]

@justiceformyfoot VWCE

 

[jyoooohs]

@justiceformyfoot And why not simply buy IWDA developed countries with 60% US exposure. ?
I feel better with IWDA rather than pure US or All world ETFs.

 

[tfosria]

@justiceformyfoot Start with the usual 60/40 breakdown (due to market capitalization of US companies), then adjust.

People here view this very deterministically, eg US won't be the leading country in the world etc etc... So what, if that happens, adjust the weights as you see fit... It won't happen overnight anyway.

Matter of fact is that the world has been underperformimg US for quite a long time, by a huge margin.

Also, it used to be quite straight forward before, since us companies would stay in US and world companies would stay in the world... Check top US holdings and top world holdings (outside of us) and you'll discover that most US companies derive more of their revenues outside of US... So what makes them US companies?!? Same for world companies eg nestle, tsmc, Novartis.. They usually have massive chunks of revenues coming from the US... So this makes it less of a clearcut and I fail to understand why global companies (despite their US revenues) would be underperformimg the US ones, but they are..

So choose wisely...

 

[dmickoh]

@justiceformyfoot they only outperformed last 10 years, also past performance is not indicative of future

 

[nari]

@dmickoh More like last 100 years

 

[raiah16]

@justiceformyfoot I had/have a similar question. More inclined towards S&P500. Another interesting fact: seems like just the top 5 (or 10) S&P500 companies seem to be doing quite well, so one could also invest in these. Just did the numbers while responding to a comment in another thread.

https://www.reddit.com/r/eupersonalfinance/comments/1562kcq/comment/jt84fyz/?utm\_source=share&utm\_medium=web2x&context=3