Asset Class Performance of Welfare States

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mrboast
Posts: 159
Joined: Sat Aug 01, 2009 4:29 pm

Asset Class Performance of Welfare States

Post by mrboast »

Bogleheads,

If we are becoming more like Western Europe in our entitlement structure, I'm curious if asset classes behave any differenlty in an advanced welfare state.

Can you point me to historical data on asset classes of France, Germany, or UK? (small caps, large caps)..just curious if the performance spread tightens, widens, no difference, whatever.

Do stocks expected return decline at all? Just looking at recent 10 year performance of VEURX vs. VTSAX does not give creedence to any of the above.


Would welcome any thoughts.
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fluffyistaken
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Joined: Fri Apr 04, 2008 1:32 pm

Post by fluffyistaken »

In before lock :lol:

But here's a useful link to compare returns across countries: http://emagazine.credit-suisse.com/app/ ... k_2010.pdf
Snowjob
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Joined: Sun Jun 28, 2009 10:53 pm

Post by Snowjob »

To many factors to make a conclusion by looking at 2 funds performances over a 10 year period. A huge one being currency. both funds you mention are in US dollars.
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Opponent Process
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Post by Opponent Process »

global investors will continue to benefit from a range of sociopolitical philosophies. investors who make concentrated bets on one country/philosophy place themselves at an unnecessary heightened risk IMO.
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37
Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Asset Class Performance of Welfare States

Post by Valuethinker »

mrboast wrote:Bogleheads,

If we are becoming more like Western Europe in our entitlement structure, I'm curious if asset classes behave any differenlty in an advanced welfare state.

Can you point me to historical data on asset classes of France, Germany, or UK? (small caps, large caps)..just curious if the performance spread tightens, widens, no difference, whatever.

Do stocks expected return decline at all? Just looking at recent 10 year performance of VEURX vs. VTSAX does not give creedence to any of the above.


Would welcome any thoughts.
You always were like a Western European entitlement state. The US has universal pensions, a payroll-based pension tax, huge government healthcare sector (US spending as % of GDP on government healthcare is the same as the UK) etc. etc.

Some things bigger, some things less big.

Any recent movement is at the margin-- a very small shift relative to GDP. So the US now has a healthcare system that looks relatively close to that of Switzerland, say.

In terms of investment performance this is one factor on so many that it's impossible to fix on one factor, and say that 'this is key'.
Eric White
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Joined: Fri May 18, 2007 10:09 am

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Post by Eric White »

fluffyistaken wrote:In before lock :lol:

But here's a useful link to compare returns across countries: http://emagazine.credit-suisse.com/app/ ... k_2010.pdf
Using the report above:

US equity premium vs bonds [1900-2009] = 4.2%
US equity premium vs bills [1900-2009] = 5.2%

Europe equity premium vs bonds [1900-2009] = 3.9%
Europe equity premium vs bills [1900-2009] = 3.8%

World ex-US equity premium vs bonds [1900-2009] = 3.8%
World ex-US equity premium vs bills [1900-2009] = 4.0%

From those results, the average relative delta of ~0.3% of the equity risk premium:
equity premium vs bonds [1900-2009] = 0.3% (4.2% - 3.9%)
equity premium vs bills [1900-2009] = 0.4% (5.2% - 3.8%)

However, if you account for variance reduction and its' effect on your portfolio over time, I think it's a different story:

US equity premium vs bonds [2000-2009] = -7.4%
US equity premium vs bills [2000-2009] = -2.9%

Europe equity premium vs bonds [2000-2009] = -5.7%
Europe equity premium vs bills [2000-2009] = +0.4%

World ex-US equity premium vs bonds [2000-2009] = -5.2%
World ex-US equity premium vs bills [2000-2009] = -0.4%

In this time bucket, it seems the welfare state helped you:
equity premium vs bonds [1900-2009] = -1.7% (-7.4% - -5.7%)
equity premium vs bills [1900-2009] = -3.3% (-2.9% - +0.4%)

Given the extremely small long term delta and the large time bucket variance, Occam's razor tells me it's a wash.

As with most things, sticking to Bogleheads principles of proper asset allocation, diversification, and low cost are more important than the noise above.

Have a great day!

Best regards,
Eric White
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