The document discusses international diversification through global equity investments. It summarizes the strategy of CapGlobal Advisors which focuses on international diversification to achieve better risk-return outcomes than domestic portfolios alone. The document then analyzes performance of global equity markets, correlation between markets, impact of currency movements, and recommends an international portfolio allocation with exposure across various regions to benefit from low correlations between markets.

1. INNOCENTS ABROADInternational DiversificationAndrea GherziLucrezia Grasso Mustafa KhanHeathcliff Lewis

2. Agenda2Firm’s StrategyGlobal Equity Markets PerformanceCorrelation AnalysisImpact of currency movementsPortfolio Allocation

3. Agenda3Firm’s StrategyGlobal Equity Markets PerformanceCorrelation AnalysisImpact of currency movementsPortfolio Allocation

4. 4CapGlobal Advisors, LLCEquities, Fixed Income and FX Portfolio Management

5. Focus on International Diversification

6. Better risk-return tradeoff

7. Diversifying across nations with different economic cycles

8. Better returns with lower systematic risk than domestic portfoliosAgenda5Firm’s StrategyGlobal Equity Markets PerformanceCorrelation AnalysisImpact of currency movementsPortfolio Allocation

9. Global Equity Markets Performance66Visible Dotcom bubble

10. Strong U.S. performanceGlobal Equity Markets Performance77Emerging Markets Volatility

11. Canada highly correlated with DollarGlobal Equity Markets Performance8Risk-Return Characteristics (Local Currency)

12. Global Equity Markets Performance9Risk-Return Characteristics (Dollars)

13. Agenda10Firm’s StrategyGlobal Equity Markets PerformanceCorrelation AnalysisImpact of currency movementsPortfolio Allocation

14. Correlation Analysis11Why Correlation is Important?Measureinteractions of different markets

15. Determine diversification benefits

16. Correlation between U.S and other Markets

17. Correlation among International MarketsCorrelation Analysis12Correlation 1981-2003 Local CurrencyCurrency Risk?

18. Correlation Analysis13Correlation 1981-2003 Dollars

19. Correlation Analysis14Comparison 1981 - 2003Lower Correlation

20. Higher Returns Volatility

21. Similar Market RiskCorrelation Analysis15Correlation is time varying!Positive Trend: correlation is increasing in time

22. Correlation Analysis16Correlation with U.S market in Local Currency

23. Correlation AnalysisCorrelation with U.S market in Dollars17

24. Correlation Analysis18

25. Agenda19Firm’s StrategyGlobal Equity Markets PerformanceCorrelation AnalysisImpact of currency movementsPortfolio Allocation