Why are my returns different than the S&P 500?

When evaluating the performance of a portfolio, it's natural to compare it against a benchmark index. Among the most prominent and recognizable benchmarks is the S&P 500, which tracks the performance of the 500 largest US companies.

One of the primary reasons our portfolios diverge from the S&P 500 index is due to diversification. Diversification, a cornerstone of risk management, involves blending various investments within a portfolio. At Camber, our portfolios encompass not only the 500 stocks represented in the S&P 500 index but also approximately 12,300 additional stocks from global markets.

This approach aligns with our long-term perspective and is grounded in academic research, aimed at consistently delivering robust and dependable returns.

Diversification mitigates exposure to the extremes of the return distribution curve, focusing instead on compounding normal returns year-over-year while sidestepping extreme negative returns.

The S&P 500 represents a portfolio solely invested in the US market, our global approach ensures exposure to a broader spectrum of investment opportunities worldwide.

As illustrated in the cartogram below, equity investment opportunities are distributed globally, with each country's size adjusted to reflect its relative market size.

While the S&P 500 has delivered exceptional returns in the last decade, surpassing both globally diversified and all-Canadian portfolios.

The past decades view of S&P 500 returns reveals subdued returns in the US market over extended periods. Including 10 years of negative returns starting in 1999 and 10 years of returns that lagged t-bills starting in 1968 (charts below). This underscores the importance of diversification and the potential risks of concentrated exposure.

Looking ahead, the future remains uncertain. However, the principles of long-term investing remain steadfast. With time as our ally, compound returns emerge as the most significant driver of wealth accumulation.

By diversifying globally, we aim to safeguard against interruptions to compounding, drawing valuable lessons from historical market events such as the decades of poor returns in the US, flat returns in Japan, and the collapse of China and Russian stock markets. This commitment to global diversification ensures that our portfolios remain resilient.