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FTSE
Rus
sell
1
ftser
usse
ll.co
m
Hom
e B
ias
and
Avo
idin
g R
egre
ts
Rad
ius
Exch
ange
Tra
ded
Foru
mTo
ront
o, C
anad
a
May
1, 2
018
Tom
Goo
dwin
, PhD
Seni
or R
esea
rch
Dire
ctor
, FTS
E R
usse
ll
FTSE
Rus
sell
2
FTSE
Rus
sell
is n
ot a
n in
vest
men
t firm
and
this
pre
sent
atio
n is
not
adv
ice
abou
t any
inve
stm
ent
activ
ity. N
one
of th
e in
form
atio
n in
this
pre
sent
atio
n or
refe
renc
e to
a F
TSE
Rus
sell
inde
x co
nstit
utes
an
offe
r to
buy
or s
ell,
or a
pro
mot
ion
of, a
sec
urity
. Thi
s pr
esen
tatio
n is
sol
ely
for i
nfor
mat
iona
l pu
rpos
es.A
ccor
ding
ly, n
othi
ng c
onta
ined
in th
is p
rese
ntat
ion
is in
tend
ed to
con
stitu
te le
gal,
tax,
se
curit
ies,
or i
nves
tmen
t adv
ice,
nor
an
opin
ion
rega
rdin
g th
e ap
prop
riate
ness
of m
akin
g an
y in
vest
men
t thr
ough
our
inde
xes.
FTSE
Rus
sell
3
Hom
e B
ias
–w
hat i
s it?
Sour
ce: I
nter
natio
nal M
onet
ary
Fund
Sur
vey,
201
2.
FTSE
Rus
sell
4
Ther
e ar
e go
od re
ason
s fo
r som
eho
me
bias
•Inv
esto
rs fe
el s
afer
(and
pat
riotic
) hol
ding
dom
estic
equ
ities
w
ith fa
mili
ar n
ames
•Les
s cu
rren
cy ri
sk
•Low
er c
osts
•Mor
e fa
vour
able
tax
trea
tmen
t
•Som
e de
gree
of h
ome
bias
may
hav
e lo
wer
vol
atili
ty
FTSE
Rus
sell
5
Hom
e bi
as le
ads
to th
eore
tical
ly in
effic
ient
al
loca
tions
Sou
rce:
Van
guar
d. C
ount
ry d
ata
from
Dec
embe
r 31,
196
9 to
Mar
ch 3
1, 2
014.
The
front
ier i
s pu
rely
theo
retic
al
FTSE
Rus
sell
6
Som
e re
cent
evi
denc
e on
the
trad
eoffs
Sou
rce:
FTS
E R
usse
ll. D
ata
from
May
5, 2
015
to A
pril
13, 2
018.
Pas
t per
form
ance
is n
o gu
aran
tee
of fu
ture
resu
lts. P
leas
e se
e th
e en
d fo
r im
porta
nt le
gal
disc
losu
res.
FTSE
Rus
sell
7
Onc
e yo
u’ve
dec
ided
to in
crea
se e
xpos
ure
to o
vers
eas
equi
ty, s
houl
d yo
u he
dge
the
curr
ency
?
•Sta
ndar
d ar
gum
ents
for a
cur
renc
y he
dge
•R
educ
es v
olat
ility
•N
o lo
ss o
f lon
g ru
n re
turn
•Pr
otec
ts a
gain
st a
rise
in th
e C
anad
ian
Dol
lar i
n th
e sh
ort r
un
•Sta
ndar
d ar
gum
ents
for l
eavi
ng c
urre
ncy
unhe
dged
•Av
oids
hed
ging
cos
ts
•N
o lo
ss o
f lon
g ru
n re
turn
•Pr
otec
ts a
gain
st a
fall
in th
e C
anad
ian
Dol
lar i
n th
e sh
ort r
un
FTSE
Rus
sell
8
Doe
s he
dgin
g el
imin
ate
curr
ency
risk
?
•U
nhed
ged
Ret
urn
= Lo
cal R
etur
n +
Cur
renc
y R
etur
n
•A
hed
ged
inde
x co
ntai
ns a
n im
plic
it be
t tha
t CA
D w
ill a
ppre
ciat
eag
ains
t fo
reig
n cu
rren
cies
. Th
e in
vest
or is
long
CA
D a
nd s
hort
all
othe
r cu
rren
cies
.
•A
n un
hedg
ed in
dex
cont
ains
an
impl
icit
bet t
hat C
AD
will
dep
reci
ate
agai
nst f
orei
gn c
urre
ncie
s. T
he in
vest
or is
sho
rt C
AD
and
long
all
othe
r cu
rren
cies
•If
eith
er b
et tu
rns
out t
o be
wro
ng, i
t will
gen
erat
e lo
wer
retu
rns
than
the
alte
rnat
ive
and
the
end
inve
stor
may
exp
erie
nce
regr
et
FTSE
Rus
sell
9
Doe
s he
dgin
g re
duce
vol
atili
ty?
-C
urre
ncy
hedg
ing
cann
ot g
uara
ntee
redu
ctio
n of
retu
rn v
olat
ility
-Fo
r thi
s w
hole
per
iod,
hed
ged
vola
tility
is 1
3.1%
ver
sus
12.3
% fo
r unh
edge
d
Sou
rce:
FTS
E R
usse
ll. D
ata
from
Dec
embe
r 31,
200
9 to
Mar
ch 3
0, 2
018.
Pas
t per
form
ance
is n
o gu
aran
tee
of fu
ture
resu
lts. P
leas
e se
e th
e en
d fo
r im
porta
nt le
gal d
iscl
osur
es.
FTSE
Rus
sell
10
Bes
ides
vol
atili
ty, t
here
is a
lso
Reg
ret R
isk
•Reg
ret i
s th
e em
otio
n ex
perie
nced
whe
n an
inve
stm
ent
outc
ome
is le
ss th
an a
n al
tern
ativ
e in
vest
men
t tha
t cou
ld
have
bee
n ea
sily
mad
e
•The
inve
stor
will
exp
erie
nce
regr
et if
:•
He/
she
goes
to a
ll ca
sh a
nd th
e m
arke
t tak
es o
ff
•H
e/sh
e st
ays
fully
inve
sted
in th
e m
arke
t and
ther
e is
a c
orre
ctio
n
•Thi
s is
a b
ehav
iour
al p
heno
men
on –
mod
ern
port
folio
theo
ry
does
n’t a
ckno
wle
dge
it as
it’s
“no
n-ra
tiona
l”
FTSE
Rus
sell
11
Hed
ged
Unh
edge
dH
edge
d –
Unh
edge
d
CA
D D
eclin
e A
ug 2
012
to J
an 2
016
49.8
%80
.7%
-30.
8%C
AD
Sur
ge J
an 2
016
to J
an 2
017
12.8
%4.
3%8.
5%C
AD
Dec
line
Jan
2017
to M
ar 2
018
13.3
%20
.3%
-6.9
%
Tota
l Ret
urn
for F
TSE
Dev
elop
ed e
x N
orth
Am
eric
a In
dex
over
diff
eren
t cur
renc
y pe
riods
Sou
rce:
FTS
E R
usse
ll an
d B
ank
of C
anad
a. D
ata
from
Dec
embe
r 31,
200
9 to
Mar
ch 3
0, 2
018.
Pas
t per
form
ance
is n
o gu
aran
tee
of fu
ture
resu
lts. P
leas
e se
e th
e en
d fo
r im
porta
nt le
gal d
iscl
osur
es.
FTSE
Rus
sell
12
If re
gret
is p
ossi
ble
whe
ther
we
hedg
e or
not
, w
hat s
houl
d w
e do
?•
Har
ry M
arko
witz
sug
gest
ed a
pos
sibl
e di
rect
ion
in th
e co
ntex
t ofh
is
own
inve
stin
g:
“I s
houl
d ha
ve c
ompu
ted
the
hist
oric
al c
ovar
ianc
e of
the
asse
t cl
asse
s an
d dr
awn
an e
ffici
ent f
ront
ier.
Inst
ead
I vis
ualis
ed m
y gr
ief
if th
e st
ock
mar
ket w
ent w
ay u
p an
d I w
asn’
t in
it –
or if
it w
ent w
ay
dow
n an
d I w
as c
ompl
etel
y in
it.
My
inte
ntio
n w
as to
min
imiz
e m
y fu
ture
regr
et, s
o I s
plit
my
(pen
sion
sch
eme)
con
trib
utio
ns 5
0/50
be
twee
n bo
nds
and
equi
ties.
”
Quo
ted
in Z
wei
g, “
Am
eric
a’s
Top
Pens
ion
Fund
,”M
oney
Mag
azin
e, 1
998.
FTSE
Rus
sell
13
Aca
dem
ics
have
look
ed a
t the
hed
ging
de
cisi
on in
the
cont
ext o
f reg
ret r
isk
•If t
he in
vest
or e
xper
ienc
es m
ore
than
twic
e th
e re
gret
of
bein
g al
l wro
ng o
n th
e di
rect
ion
of th
e cu
rren
cy o
ver b
eing
on
ly h
alf w
rong
(beh
avio
ural
ass
umpt
ion)
,
•And
the
inve
stor
has
no
shor
t-to-
med
ium
term
vie
w o
n th
e di
rect
ion
of th
e cu
rren
cy,
•The
n th
e re
gret
min
imiz
ing
choi
ce is
to h
edge
hal
f the
al
loca
tion
and
leav
e ha
lf un
hedg
ed.
Sou
rce:
Mic
hena
ud a
nd S
olni
k, “A
pply
ing
Reg
ret T
heor
y to
Inve
stm
ent C
hoic
es: C
urre
ncy
Hed
ging
Dec
isio
ns,”
Jour
nal o
f Int
erna
tiona
l Mon
ey a
nd F
inan
ce,
2008
.
FTSE
Rus
sell
14
Com
paris
on
with
50/
50
allo
catio
n
Can
adia
n D
olla
r ex
US
FTSE
Dev
ex
NA
unh
edge
d In
dex
FTSE
Dev
ex
NA
hed
ged
Inde
x
FTSE
Dev
ex
NA
50/
50
hdg/
unhd
gD
ec-2
009
–M
ar-2
018
Ann
. Ret
-0.7
%8.
8%7.
7%8.
3%
Ann
. Vol
atili
ty4.
7%12
.3%
13.1
%12
.1%
Max
imum
Dra
wdo
wn
-19.
7%-2
3.1%
-20.
6%
Aug
-201
2 –
Jan-
2016
Ann
. Ret
-4.2
%16
.0%
11.4
%13
.7%
Ann
. Vol
atili
ty4.
0%11
.4%
12.2
%11
.3%
Max
imum
Dra
wdo
wn
-11.
3%-1
8.5%
-13.
5%
Jan-
2016
–Ja
n-20
17
Ann
. Ret
8.9%
4.1%
12.2
%8.
0%
Ann
. Vol
atili
ty4.
9%12
.3%
14.0
%12
.4%
Max
imum
Dra
wdo
wn
-9.2
%-1
0.2%
-8.8
%
Jan-
2017
–M
ar-2
018
Ann
. Ret
-5.6
%16
.5%
10.9
%13
.8%
Ann
. Vol
atili
ty6.
3%9.
0%8.
1%7.
9%
Max
imum
Dra
wdo
wn
-8.1
%-9
.2%
-7.7
%S
ourc
e: F
TSE
Rus
sell
and
Ban
k of
Can
ada.
Dat
a fro
m D
ecem
ber 3
1, 2
009
to M
arch
30,
201
8. P
ast p
erfo
rman
ce is
no
guar
ante
e of
futu
re re
sults
. Ple
ase
see
the
end
for i
mpo
rtant
lega
l dis
clos
ures
.
FTSE
Rus
sell
15
Sum
mar
isin
g
•R
educ
ing
hom
e bi
as fr
om h
igh
leve
ls h
as re
duce
d vo
latil
ity a
nd
incr
ease
d di
vers
ifica
tion
hist
oric
ally
•Th
e de
cisi
on o
n cu
rren
cy h
edgi
ng o
f ove
rsea
s eq
uitie
s is
not
so
sim
ple:
•D
oes
the
end
inve
stor
exp
erie
nce
the
emot
ion
of re
gret
?
•D
oes
the
end
inve
stor
hav
e a
view
on
the
dire
ctio
n of
the
curre
ncy?
•H
as h
edgi
ng re
duce
d vo
latil
ity h
isto
rical
ly?
•D
epen
ding
on
the
answ
ers
to th
e ab
ove,
a b
lend
of h
edge
d an
d un
hedg
ed
allo
catio
ns m
ight
be
appr
opria
te
FTSE
Rus
sell
16
Than
k yo
u.
FTSE
Rus
sell
17
Impo
rtan
t inf
orm
atio
n•
©20
18 L
ondo
n St
ock
Exch
ange
Gro
up p
lc a
nd it
s ap
plic
able
gro
up u
nder
taki
ngs
(the
“LSE
Gro
up”).
The
LSE
Gro
up in
clud
es (1
) FTS
E In
tern
atio
nal L
imite
d (“F
TSE”
), (2
) Fr
ank
Rus
sell
Com
pany
(“R
usse
ll”),
(3) F
TSE
TMX
Glo
bal D
ebt C
apita
l Mar
kets
Inc.
and
FTS
E TM
X G
loba
l Deb
t Cap
ital M
arke
ts L
imite
d (to
geth
er, “
FTSE
TM
X”),
(4)
MTS
Nex
t Lim
ited
(“MTS
Nex
t”), (
5) M
erge
nt, I
nc. (
“Mer
gent
”), (6
) FTS
E Fi
xed
Inco
me
LLC
(“FT
SE F
I”) a
nd (7
) The
Yie
ld B
ook
Inc.
(“YB
”). A
ll rig
hts
rese
rved
.
•FT
SE R
usse
ll®is
a tr
adin
g na
me
of F
TSE,
Rus
sell,
FTS
E TM
X, M
TS N
ext L
imite
d,M
erge
nt, F
TSE
FI a
nd Y
B. “F
TSE®
”, “R
usse
ll®”,
“FTS
E R
usse
ll®”,
“MTS
®”,
“FTS
E TM
X®”,
“FTS
E4G
ood®
”, “IC
B®”,
“Mer
gent
®”, “
Wor
ldBI
G®”,
“USB
IG®”,
“Eur
oBIG
®”,
“Aus
BIG
®”,
“The
Yie
ld B
ook®
”, a
nd a
ll ot
her t
rade
mar
ks a
nd s
ervi
ce m
arks
use
d he
rein
(whe
ther
re
gist
ered
or u
nreg
iste
red)
are
trad
emar
ks a
nd/o
r ser
vice
mar
ks o
wne
d or
lice
nsed
by
the
appl
icab
le m
embe
r of t
he L
SE G
roup
or t
heir
resp
ectiv
e lic
enso
rs a
nd a
re o
wne
d,
or u
sed
unde
r lic
ence
, by
FTSE
, Rus
sell,
MTS
Nex
t, FT
SE T
MX,
Mer
gent
, FT
SE F
I or Y
B.
•Al
l inf
orm
atio
n is
pro
vide
d fo
r inf
orm
atio
n pu
rpos
es o
nly.
All
info
rmat
ion
and
data
con
tain
ed in
this
pub
licat
ion
is o
btai
ned
byth
e LS
E G
roup
, fro
m s
ourc
es b
elie
ved
by it
to b
e ac
cura
te a
nd re
liabl
e. B
ecau
se o
f the
pos
sibi
lity
of h
uman
and
mec
hani
cal e
rror a
s w
ell a
s ot
her f
acto
rs, h
owev
er, s
uch
info
rmat
ion
and
data
is p
rovi
ded
"as
is" w
ithou
t w
arra
nty
of a
ny k
ind.
No
mem
ber o
f the
LSE
Gro
up n
or th
eir r
espe
ctiv
e di
rect
ors,
offi
cers
, em
ploy
ees,
par
tner
s or
lice
nsor
s m
ake
any
clai
m, p
redi
ctio
n, w
arra
nty
or
repr
esen
tatio
n w
hats
oeve
r, ex
pres
sly
or im
plie
dly,
eith
er a
s to
the
accu
racy
, tim
elin
ess,
com
plet
enes
s, m
erch
anta
bilit
y of
any
info
rmat
ion
or o
f res
ults
to b
e ob
tain
ed fr
om th
e us
e of
the
FTSE
Rus
sell
Inde
xes
or th
e fit
ness
or s
uita
bilit
y of
the
FTSE
Rus
sell
Inde
xes
for a
ny p
artic
ular
pur
pose
to w
hich
they
mig
ht b
e pu
t. An
y re
pres
enta
tion
of h
isto
rical
da
ta a
cces
sibl
e th
roug
h FT
SE R
usse
ll In
dexe
s is
pro
vide
d fo
r inf
orm
atio
n pu
rpos
es o
nly
and
is n
ot a
relia
ble
indi
cato
r of f
utur
epe
rform
ance
.
•N
o re
spon
sibi
lity
or li
abilit
y ca
n be
acc
epte
d by
any
mem
ber o
f the
LSE
Gro
up n
or th
eir r
espe
ctiv
e di
rect
ors,
offi
cers
, em
ploy
ees,
par
tner
s or
lice
nsor
s fo
r (a)
any
loss
or
dam
age
in w
hole
or i
n pa
rt ca
used
by,
resu
lting
from
, or r
elat
ing
to a
ny e
rror (
negl
igen
t or o
ther
wis
e) o
r oth
er c
ircum
stan
ce in
volv
ed in
pro
curin
g, c
olle
ctin
g, c
ompi
ling,
in
terp
retin
g, a
naly
sing
, edi
ting,
tran
scrib
ing,
tran
smitt
ing,
com
mun
icat
ing
or d
eliv
erin
g an
y su
ch in
form
atio
n or
dat
a or
from
use
of t
his
docu
men
t or l
inks
to th
is d
ocum
ent o
r (b
) any
dire
ct, i
ndire
ct, s
peci
al, c
onse
quen
tial o
r inc
iden
tal d
amag
es w
hats
oeve
r, ev
en if
any
mem
ber o
f the
LSE
Gro
up is
adv
ised
in a
dvan
ce o
f the
pos
sibi
lity
of s
uch
dam
ages
, res
ultin
g fro
m th
e us
e of
, or i
nabi
lity
to u
se, s
uch
info
rmat
ion.
•N
o m
embe
r of t
he L
SE G
roup
nor
thei
r res
pect
ive
dire
ctor
s, o
ffice
rs, e
mpl
oyee
s, p
artn
ers
or li
cens
ors
prov
ide
inve
stm
ent a
dvic
e an
d no
thin
g co
ntai
ned
in th
is d
ocum
ent o
r ac
cess
ible
thro
ugh
FTSE
Rus
sell
Inde
xes,
inc
ludi
ng s
tatis
tical
dat
a an
d in
dust
ry re
ports
, sho
uld
be ta
ken
as c
onst
itutin
g fin
anci
al o
r inv
estm
ent a
dvic
e or
a fi
nanc
ial
prom
otio
n.
FTSE
Rus
sell
18
Impo
rtan
t inf
orm
atio
n (c
ontin
ued)
•Pa
st p
erfo
rman
ce is
no
guar
ante
e of
futu
re re
sults
. Cha
rts a
nd g
raph
s ar
e pr
ovid
ed fo
r illu
stra
tive
purp
oses
onl
y. In
dex
retu
rns
show
n m
ay n
ot re
pres
ent t
he re
sults
of t
he
actu
al tr
adin
g of
inve
stab
le a
sset
s. C
erta
in re
turn
s sh
own
may
refle
ct b
ack-
test
ed p
erfo
rman
ce. A
ll pe
rform
ance
pre
sent
ed p
rior t
o th
e in
dex
ince
ptio
n da
te is
bac
k-te
sted
pe
rform
ance
. Bac
k-te
sted
per
form
ance
is n
ot a
ctua
l per
form
ance
, but
is h
ypot
hetic
al. T
he b
ack-
test
cal
cula
tions
are
bas
ed o
n th
e sa
me
met
hodo
logy
that
was
in e
ffect
whe
n th
e in
dex
was
offi
cial
ly la
unch
ed. H
owev
er, b
ack-
test
ed d
ata
may
refle
ct th
e ap
plic
atio
n of
the
inde
x m
etho
dolo
gy w
ith th
e be
nefit
of h
inds
ight
, and
the
hist
oric
cal
cula
tions
of
an in
dex
may
cha
nge
from
mon
th to
mon
th b
ased
on
revi
sion
s to
the
unde
rlyin
g ec
onom
ic d
ata
used
in th
e ca
lcul
atio
n of
the
inde
x.
•Th
is p
ublic
atio
n m
ay c
onta
in fo
rwar
d-lo
okin
g as
sess
men
ts. T
hese
are
bas
ed u
pon
a nu
mbe
r of a
ssum
ptio
ns c
once
rnin
g fu
ture
con
ditio
ns th
at u
ltim
atel
y m
ay p
rove
to b
e in
accu
rate
. Suc
h fo
rwar
d-lo
okin
g as
sess
men
ts a
re s
ubje
ct to
risk
s an
d un
certa
intie
s an
d m
ay b
e af
fect
ed b
y va
rious
fact
ors
that
may
cau
se a
ctua
l res
ults
to d
iffer
mat
eria
lly.
No
mem
ber o
f the
LSE
Gro
up n
or th
eir l
icen
sors
ass
ume
any
duty
to a
nd d
o no
t und
erta
ke to
upd
ate
forw
ard-
look
ing
asse
ssm
ents
.
•N
o pa
rt of
this
info
rmat
ion
may
be
repr
oduc
ed, s
tore
d in
a re
triev
al s
yste
m o
r tra
nsm
itted
in a
ny fo
rm o
r by
any
mea
ns, e
lect
roni
c, m
echa
nica
l, ph
otoc
opyi
ng, r
ecor
ding
or
othe
rwis
e, w
ithou
t prio
r writ
ten
perm
issi
on o
f the
app
licab
le m
embe
r of t
he L
SE G
roup
. Use
and
dis
tribu
tion
of th
e LS
E G
roup
dat
a re
quire
s a
licen
ce fr
om F
TSE,
Rus
sell,
FT
SE T
MX,
MTS
Nex
t, M
erge
nt, F
TSE
FI, Y
B an
d/or
thei
r res
pect
ive
licen
sors
.
FTSE
Rus
sell
19
ftser
usse
ll.co
m