FORMAL PRESENTATION

CapGlobal Advisors, LLC

State Pension Fund

Objectives

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

2002-2013 Annualized Returns

UK (r):7.36% 𝜎: 18.42%

China E(r):11.23% 𝜎: 28.94%

India E(r):20.75% 𝜎: 32.73%

U.S. E(r):6.98% 𝜎: 15.27%

Germany E(r):11.32% 𝜎: 23.38%

Japan E(r):6.37% 𝜎: 16.25%

Australia E(r):16.17% 𝜎: 22.66%

Upside to Investing Internationally

A potential to increase returns

Increased diversification expanding internationally

Reach more industries that are more prominent abroad

Less reliant on domestic markets or securities

There can be better value found internationally

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

Downsides to Domestic Investing Only

Missed Gains

Less Diverse

Global Impact

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

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

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

Global Economic Condition

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

USA interest rate %

Currency Movements

• Appreciation vs depreciation

Impact of Currency Movements on Returns

Australia

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.

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%.

2002-2013 Local currency

2002-2013 USD$

• Bulleted list
• Bulleted list

Correlations

1991-2002 USD$ based

2003-2013 USD$ based

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

Tangency Portfolio

Minimum Varience

Maximum Return

𝜎

𝜎

𝜎

SR

SR

SR

9.82%

31.59%

5.94%

9.99%

17.04%

43.12%

16.78%

9.37%

45.11%

Monte Carlo Simulation

Expected annual return

Loss Probability:

Annual Return Probabilities

Reducing risk

T-bills

Diversificaiton

Currency Options

Currency Forwards

Conclusion

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.

Recommendation

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