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A portfolio of stocks or bonds designed to represent the entire market or a segment of the market. S&P 500 Index MSCI World Index Citibank Global Govt Bond Index FTSE 100 Hang Seng Index What’s an Index?
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Lowest cost offshore investing
Why invest with an Index?
• TransparencyTransparency• Performance Performance • CostCost
A portfolio of stocks or bonds designed to A portfolio of stocks or bonds designed to represent the entire market or a segment of represent the entire market or a segment of the market.the market.
S&P 500 IndexS&P 500 Index MSCI World IndexMSCI World Index Citibank Global Govt Bond IndexCitibank Global Govt Bond Index FTSE 100FTSE 100 Hang Seng IndexHang Seng Index
What’s an Index?What’s an Index?
Consistent Performance
Indices work in Indices work in bear markets bear markets tootoo
Building an Offshore Portfolio
Foundation = Global Index Foundation = Global Index FundsFunds
Country/Sector Country/Sector FundsFunds
ShareSharess
Expert support for Index FundsExpert support for Index Funds““Most investors, both institutional and individual,Most investors, both institutional and individual,
will find the best way to own common stockswill find the best way to own common stocksis through an index fund.”is through an index fund.”
Warren Buffett1996 Berkshire Hathaway, Annual Report
““Most investors would be better off in an index fund.”Most investors would be better off in an index fund.”Peter Lynch, Vice Chairman of Fidelity Funds
““Only about 1 out of every 4 equity unit trustsOnly about 1 out of every 4 equity unit trusts outperforms the stock market. That’s why I’m a firmoutperforms the stock market. That’s why I’m a firm
believer in the believer in the power of indexingpower of indexing.”.”Charles Schwab, Founder of largest unit trust supermarket
““Leaping tall buildings in a single bound Leaping tall buildings in a single bound is nice, but can you outperform the S&P is nice, but can you outperform the S&P
Index?”Index?”
DiversificationDiversification
Own entire market Index Funds 8-10 times more diversified Largest pension funds index core Brokers protected – can’t underperform UK Govt supports indexing over active managers
(Sandler Report) Index firms = amongst largest (3/5)
Passively ManagedPassively Managed-- US institutional equityUS institutional equity(Market Share 2005(Market Share 2005--2012)2012)
20% 21%24%
27% 28%31%
35% 37%
0%5%
10%15%20%25%30%35%40%
2005 2006 2007 2008 2009 2010 2011 2012
Source: Financial Times and eVestmentAlliance, July 9 2012
0%
4%
8%
12%
16%
20%
US Equity Indexed Assets as % of US Stock MktUS Equity Indexed Assets as % of US Stock Mkt
Source: Bogle Research
1981: $6.5bn Indexed2013: $7.1 trillion Indexed
2012 = 18%
0%5%
10%15%20%25%30%35%40%
'85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '12
Pension Funds Mutual Funds
Indexed Assets as % of US Equity AssetsIndexed Assets as % of US Equity Assets
Source: Bogle Research
2%
29%
20%
6%
38%
% of US Equity Managers % of US Equity Managers underperforming the Index underperforming the Index (December 31, 2012)(December 31, 2012)
82.8%82.8%83.1%83.1%66.5%66.5%SmallSmall --capcap(vs. S&P 600)(vs. S&P 600)
83.8%83.8%
90.2%90.2%
86.5%86.5%
3 year3 year
68.2%68.2%
80.5%80.5%
63.3%63.3%
1 year1 year
90.0%90.0%MediumMedium--capcap(vs. S&P 400)(vs. S&P 400)
79.2%79.2%All US EquityAll US Equity(vs. S&P 1500)(vs. S&P 1500)
75.4%75.4%LargeLarge--capcap(vs. S&P 500)(vs. S&P 500)
5 year5 year
Source: Standard & Poors, December2012 SPIVA Scorecard
% of US Bond Managers % of US Bond Managers underperforming the Index underperforming the Index (December 31, 2012)(December 31, 2012)
57.5%57.5%46.4%46.4%21.8%21.8%Global In come FundsGlobal In come Funds(( vsvs Barclays Global Aggregate)Barclays Global Aggregate)
50.9%50.9%
74.1%74.1%
48.8%48.8%
68.9%68.9%
1 year1 year
65.5%65.5%
93.6%93.6%
64.6%64.6%
97.7%97.7%
3 year3 year
95.0%95.0%High Yield FundsHigh Yield Funds(vs. Barclays High Yield)(vs. Barclays High Yield)
90.4%90.4%US Inv Grade short bondsUS Inv Grade short bonds(vs. Barclays 1(vs. Barclays 1 -- 3 yr 3 yr GovtGovt /Credit)/Credit)
60.0%60.0%Emerging MarketsEmerging Markets(vs. Barclays Emerging Markets)(vs. Barclays Emerging Markets)
93.8%93.8%US US GovtGovt long bondslong bonds(vs. Barclays Long (vs. Barclays Long GovtGovt ))
5 year5 year
Source: Standard & Poors, December 2012 SPIVA Scorecard
% of Global Equity Managers % of Global Equity Managers underperforming the Indexunderperforming the Index (December 31, 2012)(December 31, 2012)
46.2%46.2%
14.8%14.8%
44.3%44.3%
63.8%63.8%
1 year1 year
57.6%57.6%
9.8%9.8%
56.3%56.3%
66.3%66.3%
3 year3 year
21.1%21.1%Global Small CapGlobal Small Cap(vs. S&P Developed Ex(vs. S&P Developed Ex-- US US
Small C ap)Small C ap)
73.7%73.7%Global (ex US)Global (ex US)(vs. S&P 700)(vs. S&P 700)
75.5%75.5%Emerging MarketsEmerging Markets(vs. S&P/IFCI Composite)(vs. S&P/IFCI Composite)
61.6%61.6%Global (Global (inclincl US)US)(vs. S&P Global 1200)(vs. S&P Global 1200)
5 year5 year
Source: Standard & Poors, December 2012 SPIVA Scorecard
Reversion to the Mean: Top 20 FundsReversion to the Mean: Top 20 Funds
57%57%61961958%58%284284AverageAverage494973173162622622621212606058158154543103101111595959359352523303301010797930830864642422429958586046043939471471885151702702686822022077454578778765652392396656566266264747358358555555649649505034334344505072072066662312313339398758754444383383223434949949858510010011
Performance Performance %%
Next YrNext YrRankRank
Performance Performance %%
Next YrNext YrRankRank
19951995--2005200519821982--19921992RANKRANK