A Comparison of Equity Portfolio Returns between

The purpose of the research is to assess whether the developing markets of the worldprovide the same return on equity investment as South Africa. Portfolio investments inthese markets have increased from US$ 100 million in 1985 to US$ 47.9 billion in 2000.With globalisation and investors looking for lucrative investment opportunities to enhancetheir portfolio returns (Harvey, 1995b), the researcher compared the South African andBulgarian stock market returns and their Sharpe ratios over the past five years (2003-2008), in order to provide some guidance for investors wishing to diversify their securitiesinvestment portfolios in emerging market economies.The Sharpe ratio is one of the most widely used statistical measures in financial analysisand is an approach to evaluate the performance of a portfolio in a mean-varianceframework. It is the ratio of the expected excess return of an investment to its expectedvolatility (standard deviation) (Hodges, Taylor & Yoder, 1997) and is useful because it isan indication of whether a portfolio's returns are due to smart investment allocations ormerely a result of excess risk.Portfolios were created with large and small cap stock, as well as value and growthstocks. The primary methodology employed was quantitative mathematical modelling,and the results of the research were explained using both descriptive and inferentialstatistics.The research showed clearly that some benefit exists when investing in both theBulgarian and the South African markets. The benefit seems to increase when anintelligent weighting system (Solver) is used to allocate the holding weights of theindividual stocks included in the portfolios.The comparison of whether an investment in both markets is strategically better thanhaving money invested in the individual markets, based on a risk to return comparison(Sharpe ratio), indicates that there is no statistical significant difference other than theviSouth African large cap and value styles. A combined portfolio investment in thesestyles produced Sharpe ratios that were statistically significantly better indicating that thereturn per unit of risk taken was superior.The research reveals that when funds are invested in both markets, according to thestyle mandates and a comparison made between Solver weighted and equal weightedportfolios, the Solver weighted portfolios render Sharpe ratios that are statisticallysignificantly better in three of the four styles, thus indicating that the return per unit of risktaken is better following a Solver weighted approach