Global Diversification

If you were with us this time last year, you may recall that the markets were in a much gloomier state amidst a panic-driven sell-off. The demoralizing numbers were reflected in the early days of 2016, as well as in Dimensional Fund Advisors’ 2015 Market Review, released about a year ago. At the time …

  • USA Today reported on “the worst four-day start to the year ever for the broad U.S. stock market.”
  • The Financial Times reported a global “climate of fear,” following the temporary trade halt in China’s stock market.
  • Plenty of other headlines were crying out that we’d best prepare for the worst. “This year is a wake-up call to think about lower returns for the next several years,” one such prognosticator fretted at year-end 2015.

Not so fast. That may be the biggest take-away from Dimensional’s newly released 2016 Market Review, which we share with you today. While annual 2015 and early-2016 performance had been marred by nearly universal negative-to-low returns (especially from small-cap and value stocks), 2016 annual returns were nearly as polar opposite to that experience as returns can get.

“Many investors may not have expected global stocks and bonds to deliver positive returns in such a tumultuous year,” Dimensional’s 2016 review concludes. To say the least!

We invite you to take a closer look at this latest review and let us know if we can discuss any of the questions or ideas it may generate for you.

You can access the review by clicking this link:  Warburton Capital – 2016 Market Review


We’re particularly fond of this key message: “This [market] turnaround story highlights the importance of diversifying across asset groups and regional markets, as well as staying disciplined despite uncertainty. Although not all asset classes had positive returns, a globally diversified, cap-weighted portfolio logged attractive returns in 2016.”

What message were we delivering this time last year? We were urging anyone who would listen to avoid turning scary market risks into permanent personal damage by selling in fearful reaction to the near-term news.

On the flip side today – but for the same, evidence-based reasons – we now caution you against reading too much into, or piling too many of your investments into the recent outperformers. For managing market highs and lows alike, we are guided by the following sensible advice expressed in Dimensional’s 2016 review by Nobel Laureate Eugene Fama, a founding board member for the firm:

“There’s no information in past returns of three to five years. That’s just noise. It really takes very long periods of time, and it takes a lot of stick-to-it-iveness. You have to really decide what your strategy is based on – long periods of returns – and then stick to it.”

Well said. That said, please let us know if we can say more, or we can otherwise assist you with your planning for 2017 and beyond.

– Your friends at Warburton Capital Management

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