As we begin looking at our year-end investment portfolios, and feeling a sense of dread as we see our retirement savings down a third or more, it is useful to compare the US markets with the rest of the world. As it turns out, over the last year US investors would have been better off investing more in the US, and less overseas in the "hot" markets, such as China and Brazil (see WSJ article). Just as many investors this year realized that their global exposure was a little lite, the bottom fell out in some of the very same markets they began increasing their exposure in (not to mention drops in the US market - see graphic below from the WSJ).

Source: Wall Street Journal and Thomson Reuters

After rallying nearly 10% over the last week, the DJIA is down "only" 33 percent for the year. In comparison, the Shanghai Composite (China) is down over 64 percent, while the the Bovespa (Brazil) the DAX (Germany) are down over 42 percent. The FTSE 100 (UK) is down about the same as the US DJIA. The Dow Jones World Index, which excludes the US markets, is down 49 percent in dollar terms YTD. Of course, massive sales of foreign stocks by US investors has also not helped international markets. Between July and September, US investors sold $92 billion more of foreign stocks and bonds than they bought during the same time. Therefore, if you recently failed to jump on the international diversification train this year, either because you had foresight, or were simply too confused or too lazy and never got around to it, smile - you could be even worse off this year. If you jumped on board back in 2003, you have experienced a nearly lost half-decade for many markets, but you can also smile - at least you are nearly flat. If you jumped on board in late 2007, or earlier this year, well ........, at least you have your health (and a lot of company to commiserate with).

The Swiss funds-of-funds firm Gottex Fund Management is launching a new fund that will emulate the investments and strategies of some of the larger U.S. academic endowment funds, such as those at Harvard and Princeton (see the HedgeFund.net article). The new Gottex fund will also allocate around 65% of the fund to alternative investments. Why 65%? When preparing the fund, the Gottex group found that a 65% exposure to alternative investments, when combined with traditional investments, did the best over the long-term. No indication if that means risk-adjusted or not. As for the alternative investments, everything from hedge funds, private equity, long-only equity, commodities, fixed income, real estate, and other real assets will be utilized. Given the current environment, the timing could prove advantageous. As mentioned by fund manager William Landes, "For the short-term the challenging environment for alternative products like private equity and hedge funds was where the opportunities lie. If I put my investor hat on, I would say that if I have a six to nine-month tactical horizon, global equity markets and some alternative markets are actually where I want to be.” Given the move by many academic endowments towards greater exposure to real assets, commodities, private equity, and international equities, any new fund emulating the likes of the Harvard fund may offer no other choice.