FORMAL PRESENTATION

State Pension Fund

CapGlobal Advisors, LLC

Objectives

Benefits of International Diversification
The Impact of currency movements on global portfolios
The drivers and consequences of those correlations on the markets

UK(r):7.36%𝜎: 18.42%

JapanE(r):6.37%𝜎: 16.25%

GermanyE(r):11.32%𝜎: 23.38%

IndiaE(r):20.75%𝜎: 32.73%

ChinaE(r):11.23%𝜎: 28.94%

AustraliaE(r):16.17%𝜎: 22.66%

2002-2013 Annualized Returns

U.S.E(r):6.98% 𝜎: 15.27%

Less reliant on domestic markets or securities

A potential to increase returns

There can be better value found internationally

Reach more industries that are more prominent abroad

Increased diversification expanding internationally

Upside to Investing Internationally

Annual Performance: Foreign vs. U.S. Equities (EAFE, EM, S&P 500)

The US stock market is very large and recieves lots of foreign investment, meaning other countries enconomic changes affect the US stock market

Global Impact

Less Diverse

Missed Gains

Limiting to just US securities lowers your diversification compared to an internationally diverse portfolio

Not investing abroad can lead to missing out on more gains that are avaible in other stock exchanges

Downsides to Domestic Investing Only

India's Rate (Repo Rate): 7.75%
China's Rate (Benchmark Lending Rate): 6.00%
Aus: 2.5%

USA interest rate %

Global Economic Condition

Appreciation vs depreciation

Currency Movements

Impact of Currency Movements on Returns

In both periods, returns in Australia's local markets were positive, but conversion to USD significantly altered the outcomes

Extract returns in 2012, where the index is valued at 7,108.42 in local currency, an exchange of 0.9436, for USD 883,839.28 or 784%.

Extract return in 2001, where the Index is valued at 3,625.46 in local currency, an exchange of 1.8248, for USD 233,0791.97 or 133% return

Invest 100,000 USD into it's Index in 1991, with a local exchange of 1.28. For a total of 117.31 units.

Australia

2002-2013 USD$

2002-2013 Local currency

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China & U.S.: Very low correlation (0.05) to (0.32)India & U.S.: Very low correlation (0.09) to (0.55)

2003-2013 USD$ based

1991-2002 USD$ based

Correlations

SR

Maximum Return

Tangency Portfolio

Minimum Varience

𝜎

16.78%

45.11%

9.37%

17.04%

43.12%

9.99%

9.82%

31.59%

5.94%

Expected annual return

Monte Carlo Simulation

Loss Probability:

Annual Return Probabilities

T-bills

Currency Forwards

Diversificaiton

Reducing risk

Currency Options

Recommendation

Invest internationally with a balanced approach with both domestic and international investments is recommended for long-term growth.

Summary

Currency fluctuations can increase or decrease U.S. investors' returns when converting foreign assets.

A weaker U.S. dollar boosts returns in markets like EAFE and emerging markets, while a stronger U.S. dollar reduces them.

International diversification offers growth but adds exchange rate risks.