For the 20 funds the average beta is 0.64. For a similar sample in the 1980s the av-
erage beta was 0.71. Thus, there is a fair amount of stability in historical risk num-
bers.
As shown in Exhibit 11.6 through 11.8, the U.S. market is less risky than other na-
tional markets from a U.S. perspective. Given the low correlation between non-U.S.
markets, however, the relative riskiness of U.S. portfolios and an internationally di-
versified portfolio is less clear.
Exhibit 11.14 shows that the average standard deviation of an international port-
folio was somewhat higher than the S&P index. This evidence would suggest that the
higher risk of individual countries relative to U.S. markets was balanced by low cor-
relation between countries, and the interaction of these two effects produced a port-
folio with risk somewhat higher than that of a U.S. portfolio.
The realized return on international portfolios relative to U.S. portfolios is very
dependent on the time period studied.
This 10-year period had very high returns in the U.S. market. There were other 10-
year periods where international portfolios outperformed U.S. portfolios.
There are many fewer international bonds funds than there are stock funds, and
their history is much more limited. Exhibit 11.15 shows summary statistics for the
six funds for which data were available. The last column is the correlation coeffi-
cient of each fund with the Shearson–Lehman bond index, which is the standard
index used to calculate the performance of U.S. bond funds. It is the bond market
equivalent of the S&P index. For U.S. domestic bond funds the correlation with the
Shearson– Lehman index would be 0.85 to 0.90. Examining the last column shows
that once again the promise of low correlation is met. The average correlation of
0.51 is considerably less than for U.S. bond funds. The standard deviation of a bond
fund is very dependent on the maturity of the portfolio. Portfolios of bonds with
long maturities have a higher standard of deviation than portfolios of short-matu-
rity bonds. We have no information on the maturity of the foreign bond funds rela-
tive to the Shearson–Lehman index. Thus, it is not meaningful to compare standard
deviations.
The risk structure between various countries has been studied for 20 years, and the
result of low correlation among international markets relative to intracountry portfo-
11 • 20 INTERNATIONAL DIVERSIFICATIONFund Correlation
with
Sample Mean Shearson–
Period Return Standard Lehman
Fund Name (years) Monthly Deviation Beta Index
Fidelity Global Bond Fund 10 0.42% 1.85% 0.76 0.48
T. Rowe Price International Bond Fund 10 0.60% 2.41% 0.80 0.38
PaineWebber Master Global Income Fund 10 0.50% 1.32% 0.66 0.58
Putnam Global Governmental Income Trust 10 0.52% 1.85% 0.87 0.54
Scudder International Bond Fund 10 0.58% 2.05% 0.87 0.49
Morgan Stanley Dean Witter World Wide Inc. 10 0.46% 1.50% 0.78 0.60
Average 10.00 0.51% 1.83% 0.69 0.51Exhibit 11.15. Performance Data on Bond Funds.