The holy grail of high growth assets
In today's investment landscape, where portfolio diversification is a standard strategy, the demand for high-growth assets to enhance overall performance is increasing. However, identifying reliable structural stories (with low variability in outcomes) poses a significant challenge, as many tend to be short-lived or deliver inconsistent returns over the long term. Securing a high-growth asset that consistently performs well and offers robust statistics to complement a diversified portfolio is becoming increasing scarce / narrow.
Performance
When investors think about which country to allocate funds to maximise growth on a long-term basis, the US is at the forefront of every investor’s mind. Until recently, China also stood out as a prime destination for high-growth investments, following an impressive decade from 2010 to 2020. However, beyond the radar of many mainstream investors lies a country that has not only outpaced the U.S. over the past 20 years but has also matched its Magnificent 7 propelled returns. Introducing Country X — a region that has consistently delivered superior returns, even during the peak performance periods of other nations. Over the last two decades, Country X has achieved an 11-fold increase in growth, leaving the U.S. trailing with a comparatively modest 7-fold growth.
![Source: MSCI, data as of 30/06/2024, 20-year period](https://www.livewiremarkets.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaHBBK3ZlQ3c9PSIsImV4cCI6bnVsbCwicHVyIjoiYmxvYl9pZCJ9fQ==--58140e5ba0aa671069342c2f24cd5cfe99499184/Returns%20LW.png)
Statistics
As pure performance alone lacks the complexity and dimensions needed to determine an asset’s viability in a portfolio, a more comprehensive analysis of statistical measures offers deeper insights. When comparing Country X to other regions, several key observations emerge:
- Country X boasts the highest annualised returns compared to other countries and regions.
- Country X also exhibits the highest annualised volatility among its peers.
- Country X ranks 3rd in its Sharpe Ratio relative to other regions (US and World are basically an overlap in any case).
- Additionally, Country X has the 2nd lowest correlation to global equities.
![Source: MSCI, data as of 30/06/2024, 20-year period](https://www.livewiremarkets.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaHBBK3plQ3c9PSIsImV4cCI6bnVsbCwicHVyIjoiYmxvYl9pZCJ9fQ==--dcab18d3c9b8ef73442bd3507a2c8362c967641a/Table%20LW.jpg)
When
analysing the data, Country X emerges as an optimal high-growth asset,
offering significantly higher returns while maintaining a competitive Sharpe
Ratio compared to other countries and regions. Furthermore, its low correlation
to global equities makes Country X an ideal addition to the global
equities’ component of a diversified portfolio.
Rolling Returns
When dealing with higher-risk assets, investors typically adopt a longer time horizon. To account for this, we conducted an analysis of rolling 3-year return statistics, comparing Country X to other countries and regions. The findings reveal:
- The consistency of Country X’s rolling performance, having the 2nd highest average rolling 3Y returns.
- Country X having the 2nd highest maximum 3Y rolling returns, rewarding long-term investors.
- The reduction of risk as we increase the horizon for Country X, with its minimum 3Y rolling returns at -27%, the 3rd highest despite having the highest volatility on an annualised basis.
![Source: MSCI, data as of 30/06/2024, 20-year period](https://www.livewiremarkets.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaHBBKzNlQ3c9PSIsImV4cCI6bnVsbCwicHVyIjoiYmxvYl9pZCJ9fQ==--e1ae29ea4f0db4dc7dff2716d8417707dd2fb645/Table%20LW1.jpg)
![Source: MSCI, data as of 30/06/2024, 20-year period](https://www.livewiremarkets.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaHBBK3JlQ3c9PSIsImV4cCI6bnVsbCwicHVyIjoiYmxvYl9pZCJ9fQ==--eea99394a6c9fc37dd52adb994a362661a8e6d06/Return%20LW1.png)
Overall, Country X’s performance, statistical metrics and rolling returns demonstrate its robustness as a high-growth asset that is able to complement other equity allocations in an existing portfolio. While this may seem too good to be true, the country in question is indeed real — India.
What about Alpha
With India’s equity market fitting the bill of a perfect high-growth asset, one must ask if it's best to gain exposure through passive or active investment. As we can see below, not only does the average Indian fund manager generate a much higher alpha, but India also has 3 times as many fund managers who are able to outperform the benchmark relative to the US and Australia.
![Source: Morningstar, S&P Global, data as of 30/06/2024, 10-year period](https://www.livewiremarkets.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaHBBKzdlQ3c9PSIsImV4cCI6bnVsbCwicHVyIjoiYmxvYl9pZCJ9fQ==--67aa2618003f45aec1260fbf69b5cc76d6b21725/Table%20LW2.jpg)
Unlike most developed markets, there is sustainable value addition from active investing in India over long-term periods due to factors such as information asymmetry, high corporate ownership held by founders, low coverage of mid/small-cap stocks, rapidly developing addressable market and an improving corporate governance framework across public companies.
For investors seeking to partake in India’s high-growth narrative, having exposure through active management provides an enhancement of performance on top of an already robust return profile.
![Mugunthan Siva](https://www.livewiremarkets.com/rails/active_storage/representations/proxy/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaHBBaGNKIiwiZXhwIjpudWxsLCJwdXIiOiJibG9iX2lkIn19--c007267ed535f1444292262b6905fb0c3ec1e962/eyJfcmFpbHMiOnsibWVzc2FnZSI6IkJBaDdCem9MWm05eWJXRjBTU0lJY0c1bkJqb0dSVlE2RTNKbGMybDZaVjkwYjE5bWFXeHNXd2RwTjJrMyIsImV4cCI6bnVsbCwicHVyIjoidmFyaWF0aW9uIn19--645eec5de15df687a8b5a37637bced8c8b42e5ce/Screen_Shot_2017-05-08_at_12.17.50_PM.png)
5 topics