Fund Management

Equity Markets Outperformance in 2005 - The Facts

Stephen Harris 10 January 2006

Equity Markets Outperformance in 2005 - The Facts

Global equity markets broadly outperformed both fixed income and hedge funds in 2005 according to MSCI International Equity Indices. And eme...

Global equity markets broadly outperformed both fixed income and hedge funds in 2005 according to MSCI International Equity Indices. And emerging markets returned consistently higher figures than developed markets. According to the year-end figures, Latin America returned the highest regional figures overall, 44.92 per cent with EAFE (Europe, Australasia and Far East) turning in the best performance in the developed markets region at 10.86 per cent. But Asia Pacific equity markets outperformed both Europe and North America, which saw only rises of 6.54 per cent and 5 per cent respectively. In contrast, the average hedge fund returned 9.18 per cent last year, according to data published by Chicago-based Hedge Fund Research. In 2004, the average fund returned 9.03 per cent. Hedge funds that specialized in emerging markets in eastern Europe and CIS were the engine of hedge fund growth after posting a 51.69 per cent return. The best performing country index was Egypt, which was up over 154 per cent, whereas the worst, according to MSCI, was Venezuela, which was down over 28 per cent. Joining Egypt at the top of the table were Colombia (102.31 per cent), Jordan (71.72 per cent), Russia (69.5 per cent) and Argentina (59.68 per cent). Country laggards included Malaysia (-1.52 per cent), New Zealand (-3.45 per cent), Portugal (-4.5 per cent) and just above Venezuela came Ireland, which was down 4.74 per cent according to MSCI. The research reveals that 15 of the top 20 performing equity indices are in emerging markets. Of the traditional world economic leaders, Japan ranked seventeenth out of the 50 countries included, the UK ranked forty-second and the US ranked forty-first. The Standard & Poor's 500 index returned 3 per cent in 2005. Energy was unsurprisingly the best performing sector worldwide, having risen by 26.2 per cent and yielded even higher returns in emerging markets, at 57.21 per cent. The worst sector returns globally were the telecommunication services (down 12.46 per cent) and consumer discretionary sectors (flat) although again returns were higher in the emerging markets than the developed markets for these and all other sectors. Financials came in at 28.06 per cent, industrials at 10.17 per cent and IT towards the bottom with an uninspiring 4.21 per cent. Small cap indices generally outperformed their standard indices counterparts. Denmark delivered the highest returns (45.43 per cent) and New Zealand (-4.23 per cent) the lowest returns of country small cap indices. Out of 23 developed market countries, Japan ranked second, the UK ranked sixteenth, and the US ranked eighteenth among small cap indices. Generally, growth indices performed better than value indices, with Latin America showing the biggest increases across the board with 48.49 per cent rise in the value index and 41.40 per cent in the growth index. This compares with the MSCI World Value Index with an increase of 7.03 per cent and MSCI World Growth Index with an increase of 5.76 per cent.

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