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Slice & Dice
wagnerjb
07-06-2007, 9:04 AM | Post #2408887
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For example, international stocks' correlation to the S&P 500 was 0.48 from 1970 to 1997, but 0.83 from 1998 to 2002.
First, international diversification is very basic and doesn't have anything to do with "Slice & Dice". Second, a 4-year time period (1998-2002) is pretty meaningless when we are analyzing long-term issues.
He also concludes that many of the diversification advantages of small and large value may have been diminished by the reduction of the "value premium".
Personally, I don't overweight small or value for diversification. Doing this arguably impairs your diversification. The reason for doing so is to capture higher long-term returns from small and value. If you overweight small and value and the "premium" no longer exists, your downside isn't much. You get the same equity return, but your portfolio is slightly less well diversified.
Others will argue that Slice & Dice allows you to capture benefits from rebalancing. While this may be true, I use wider rebalancing limits and won't pay taxes for this purpose. Thus, I discount this value for me.
Bottom line for me - the arguments are less than convincing. The small and value premiums have held up over a long time period in virtually every single country. Sure, they go in cycles like everything else, but for a long-term investor I think it is a sensible strategy (as long as you don't bet the farm on it).
Best wishes.
Andy
Originally posted in thread: 59564
Topics
correlation
international diversification
international stock
large value
rebalancing
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