The stock market of a country is not the same as its economy. Many investment management processes allocate investments based on where they are domiciled. For example, a strategic weighting to geographical regions will be set based on macroeconomic conditions and market capitalisation, and then allocations altered based on the relative valuations of regional markets. In reality, most investments, although domiciled in a country, generate their returns from around the globe, be this an equity like Unilever or an investment trust like the Finsbury Growth & Income Trust which is a UK listed investment trust.

At Tacit, the growth component of our investment strategies has never had a neutral position based on where it is domiciled. The weightings to different regions are driven purely by the investments available, their respective growth rates, and the prevailing valuation at which we can purchase that investment for our clients. Our process is agnostic to whether an investment is listed in London or Shanghai.

This approach allows us to keep an open mind and not become biased to any one region or country when looking for future investments. Over the past decade this has resulted in larger than average weightings to the US and now to Asia.

The chart below is the simplest way we can illustrate why it is important not to let the economic and political conditions in a country dictate the investments you buy. In fact, poor economics and political upheaval can provide a good entry point for future returns as asset prices in such regions have already fallen to reflect the issues. 

The above chart illustrates this point very clearly as, unlike many investors’ perception, you did not need to invest in the US equity market over the past 20 years to generate strong returns.

We thought the above chart was an interesting perspective given that much of the commentary focuses on rising interest rates in the short term and not on the longer terms returns that can be generated by being patient.