July 2014
In Part 1, we note that projecting the future value of equities is a tough but potentially rewarding challenge. Even slightly improved insights and investment forecasts can generate significant outperformance. Incorporating new relevant information into the forecasting process is the Holy Grail to enhanced performance as, if valid, it virtually assures superior results. Country-level information potentially represents such an opportunity, as it has generally not been incorporated into investment analyses and shows potential for reliably and consistently impacting future stock prices.
But is country selection productive? Do countries matter? The answer to both questions is, we submit, yes. We believe select country information does have analytical value and that:
In Part 2, we observe that, despite the value of this information, equity analysts have not incorporated it into their research process. They have been impeded by the obstacles involving its collection, standardization, and use. To make such information viable, analysts require access to methods that support the qualitative analysis of sovereign factors. They also need procedures for standardizing the analytical results.
Finally, in Part 3, we discuss how the Country Selection Technique is used to build international equity portfolios and how portfolios built using the Country Selection Technique have demonstratively delivered superior risk-adjusted performance for more than a decade.
