Portfolio Design: A Modern Approach to Asset Allocation (Wiley Finance)

363 Pages·2011·6.17 MB·English

by  Richard C. Marston

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Portfolio
Design

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Portfolio
Design
A Modern Approach to
Asset Allocation
RICHARD C. MARSTON

John Wiley & Sons, Inc.
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Copyright(cid:1)C 2011byRichardC.Marston.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:

Marston,RichardC.
Portfoliodesign:amodernapproachtoassetallocation/RichardC.Marston.
p.cm.–(Wileyfinance;641)
Includesindex.
ISBN978-0-470-93123-3(hardback);ISBN978-111-8-00705-1(ebk);
ISBN978-111-8-00703-7(ebk);ISBN978-111-8-007044(ebk)
1.Assetallocation. 2.Portfoliomanagement. I.Title.
HG4529.5.M3742011
332.6–dc22
2010051229
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
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To Jerrilyn Greene Marston

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Contents
Preface xiii
Acknowledgments xv
AbouttheAuthor xvii
AbouttheBook xix
Disclaimers xxi
CHAPTER1
AssetAllocation 1
IngredientsofAssetAllocation 3
LessonsoftheRecentDownturn 6
SoAreBondsthePlacetoInvest? 10
SoWhatHappensWhentheEconomyTurnsUp? 13
SomeNecessaryToolsforAnalysis 15
Appendix:DescriptionoftheStatisticalTools 16
CHAPTER2
Long-RunReturnsonStocksandBonds 21
StocksandBondsSince1951 22
HowMuchMoreAttractiveAreStocksthanBonds? 24

RealReturns 25
ReconsideringBondReturns 27
ReconsideringStockReturns 30
AlternativeEstimatesofLong-RunStockReturns 32
UpperandLowerBoundsforEquityReturns 35
Appendix:AlternativeEstimatesofStockReturns 36
CHAPTER3
Small-CapStocks 41
WhatDoWeMeanbySmall-CapStocks? 43
RelativePerformanceofLarge-CapandSmall-Cap
Stocks—RussellSeries 45
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viii CONTENTS
RelativePerformanceofLarge-CapandSmall-Cap
Stocks—SBBISeries 48
RelativePerformanceofLarge-CapandSmall-Cap
Stocks—BroaderAnalysis 50
Large-CapandSmall-CapStocksinaPortfolioContext 52
Summary—KeyFeaturesofSmall-CapStocks 55
CHAPTER4
ValueandGrowthInvesting 57
DescriptionoftheRussell1000Indexes 57
RelativePerformanceofGrowthandValueIndexes 59
ValueandGrowthIndexesforEarlierPeriods 64
RelativePerformanceofSmall-CapGrowthandValueStocks 65
PortfolioswithGrowthandValue 69
Summary—KeyFeaturesofGrowthandValueStocks 71
CHAPTER5
ForeignStocks 73
ReturnsonForeignandU.S.Stocks 75
CurrencyCapitalGainsandForeignStockReturns 79
DiversificationBenefitsofForeignStockInvesting 85
AreThereShortcutstoOwningForeignStocks? 90
Summary—KeyFeaturesofForeignStocks 93
CHAPTER6
EmergingMarkets 97
WhatIsAnEmergingMarket? 98
EmergingStockMarketIndexes 101
EmergingStockMarketReturns 103
RisksofInvestinginEmergingStockMarkets 107

EmergingMarketBonds—ABriefHistory 113
ReturnsonEmergingMarketBonds 114
Summary—KeyFeaturesofEmergingMarketStocks
andBonds 117
CHAPTER7
Bonds 121
TreasuryBonds 122
TheWiderU.S.BondMarket 127
ReturnsonU.S.Bonds 131
BondMarketsOutsidetheUnitedStates 133
Summary—KeyFeaturesofBonds 140