Introduction to Long-term Investing
Understanding the Long-term Investment Horizon
An investment time horizon is simply the amount of time an investor has before they need their money returned to fund a specific goal. From an IRS perspective, a long-term investment is one that is held for over one year and qualifies for capital gains tax treatment. At Hemispheres, we consider a holding period greater than 3 – 5 years as long term in all of our strategies, including the flagship Global Equities Product.
An investor’s Investment horizon is important to know because certain investment products are more suitable than others in meeting an investor’s goals. If an investor has a short-term time horizon (less than 3 years), he is less risk tolerant and needs more price stability in the assets he invests in. An investor with a long-term investment horizon has more ability to tolerate risk, or price volatility.
The Power of Patience
As is true in so many areas of life, the patient investor almost always wins. Value investing is a well-known investment strategy that is suitable for investors with a longer-term investment horizon. Value investors look for securities that are discounted based upon the intrinsic value of the company’s assets. The strategy is dependent upon fundamental analysis, acceptable financial metrics, and valuation assessment. Often, a stock is undervalued, because of irrational fear by investors. Fear leads to a security trading at discounted levels until investor perception changes and the price normalizes. Changing investor perception can take time, requiring investor patience. However historically, value stocks have better risk/return profiles than other investment strategy stocks.
Over the long run, value investing outperformed other investment strategies[1]. An exception occurred during the very low interest rate environment between 2009 to 2022 where growth strategies outperformed value. In 2023, investment returns for value stocks outperformed growth as interest rates reverted to historical normal levels. We should point out that Warren Buffet, one of the greatest investors of our time, is a value investor.
The Role of Global Equities in Long-term Investment Portfolios
Growth Opportunities Worldwide
There are over 45 countries with investible stock markets. Not all countries have the same monetary and fiscal policies and those policies matter to foreign investors. Globally, Hemispheres can invest in over 10,000 market leading companies with market capitalization over $1 billion. These opportunities compare to 2,000+ in the US alone, providing higher diversification potential and enhanced returns.
Please note the returns in the table below. Hemispheres’ returns on almost all time periods were stronger than the Global Value Benchmark and the S&P 500.
| Start Date | End Date | HIM Global Equities |
MSCI Global Value Index |
S&P 500 | |
| 1 Year | 12/31/2022 | 12/31/2023 | 37.76% | 13.69% | 26.26% |
| 3 Years | 12/31/2020 | 12/31/2023 | 11.73% | 9.56% | 10.00% |
| 5 Years | 12/31/2018 | 12/31/2023 | 16.60% | 10.23% | 15.68% |
| 8 Years | 12/31/2015 | 12/31/2023 | 15.22% | 8.46% | 13.22% |
| Since Inception | 1/31/2015 | 12/31/2023 | 11.29% | 7.55% | 11.80% |
Diversification Benefits of Global Equities Investing
During most periods shown in the table above, HIM Global Equities outperformed the S&P 500 while garnering diversification benefits, thereby reducing investor risk. Risk can be reduced in several ways. A quantitative measure of how stocks in one market increase or decrease relative to a different market is measured by correlation coefficients.
Correlation
The table below provides correlation statistics from 1988 to 2023
| S&P 500 | MSCI ACWI Benchmark |
MSCI EM Benchmark |
Investment Grade Bonds |
|
| S&P 500 | 1.00 | 0.90 | 0.60 | 0.05 |
| MSCI ACWI | 0.90 | 1.00 | 0.76 | 0.06 |
| MSCI EM | 0.60 | 0.76 | 1.00 | 0.16 |
| Investment Grade Bonds | 0.05 | 0.06 | 0.16 | 1.00 |
Statistically, a correlation factor of 0.7 or less means that adding a different asset class or an individual stock to a portfolio offers diversification benefit. The MSCI Emerging Market index correlation to United States markets is 0.6 and highlights that the relative movements between the S&P 500 and MSCI EM provides investors with opportunities to buy or sell into international stock markets in which prices move in a differing direction from the U.S. markets. In other words, adding Emerging Market assets to the S&P improves portfolio diversification. Investment Grade Bonds provide even greater diversification benefits, highlighting the value of investing in different asset classes.
Economic Considerations
Studies show that investing internationally provides significant benefits to portfolio return. However, during volatile times the returns can vary materially. This fact highlights the need to evaluate a specific country’s economy as well as the individual company. By opportunistically investing Hemispheres enhances returns for investors. In addition to the fundamental analysis performed on an individual company, Hemispheres assesses whether the investment environment is supportive of foreign investors and market liquidity.
In February of 2023, the Vietnam stock market declined due to inflation and supply chain pressures linked to the Ukraine-Russia war. This represented a strong buying opportunity for international/global investors. The Vietnam stock market is in one of the fastest growing economies in the world currently priced at a 35% to 40% discount on a price-earnings basis, to the S&P 500. Following the nadir in February 2023, the Ho Chi Mihn Stock Index rallied about 22% versus 12% for the S&P 500 over the following six months.
The significance of Currency
Currency can materially impact on portfolio returns. A strengthening dollar relative to local, international currencies reduces stock returns. The converse is also true, a weakening dollar makes international investment more attractive.
Portfolio Rebalancing
Hemispheres Investment Management is an active manager. The managers constantly evaluate and rebalance the price movements of the market in general, of the holdings in our strategies, and prospective securities that could provide return enhancement and risk reduction[2]. Hemispheres is a separate account manager, meaning that we treat every account individually. Hemispheres strategically aligns portfolio holdings to meet investor long-term investment goals and risk tolerance. We would refer you to the March 18, 2024, insight article on the extensive way that Hemispheres manages portfolio risk.
Conclusion
We recognize that individual and institutional investors alike may be new to investing in Global Equities. There are complexities and nuances associated with investing in various markets that require expert guidance. Investing in Global Markets can provide both returns and diversification benefits to our clients and therefore we urge investors to explore long-term investment financial objectives and explore how Global Equities can play a pivotal role in achieving your goals. Hemispheres Investment Management’s team of seasoned professionals have a 35-year track record of managing successful investment strategies. The Global Equities product is Hemispheres flagship product.
Please contact Hemispheres Investment Management for a free consultation. We provide guidance and strategies to assist you optimize your investment policy and help you achieve your investment goals. Book a meeting
[1] https://hemispheresim.com/putting-the-economy-back-on-track Rebecca Holden, CFA February 3, 2023
[2] https://hemispheresim.com/strategic-diversification-and-risk-management-in-global-equities-investing/ by Rebecca Holden, CFA, March 18, 2024, outlining the fundamentals of risk and Hemispheres risk management procedures.
