It's no secret that much of the financial news over the past year has focused on concerns about European sovereign debt, and in particular countries like Greece, Portugal and Spain. Dimensional Funds recently published a paper addressing some of these issues. The entire paper can be found here, and the summary follows:
SUMMARYNearly three years since it began, the European sovereign debt crisis continues to create great uncertainty in global financial markets.This is understandably an anxious time for investors. The crisis has raised questions about not only the sustainability of sovereign debt burdens in Europe, but about the future of the common currency experiment.At a wider level, investors globally are expressing concern about the impact of the crisis on economic growth rates and the financial system itself.However, as we have seen, the extent of uncertainty—as expressed in market prices—is nowhere near the levels reached during the Lehman crisis of late 2008.It is also worth noting that policymakers in the major economies, both inside and outside Europe, have made contingency plans to ensure liquidity is made available in the event of any future strains in credit markets.On Dimensional’s part, our senior investment team is closely watching developments and stands ready to review the status of Greece and other Eurozone participant countries should the circumstances merit it.We have zero exposure to Greek government debt, as Greece is not eligible for our fixed income strategies. Our exposure to Greek equities is minimal, and we have suspended further purchases in that country for the time being.We understand the anxiety of clients at this time. Like you, we do not know what the future holds. But we do know that markets incorporate all known information and that the widespread anxieties are already reflected in prices.Finally, you can be confident that our disciplined investment processes, the flexibility of our approach, and the quality of our investment team position us extremely well to continue to manage our portfolios in the best interests of clients.We are always happy to answer your questions and stand ready to provide any further clarification you need.