In an April 2014 report titled Global Flows in a Digital Age, McKinsey researchers said “the movement of goods, services, finance and people has reached previously unimagined levels.” Increasing globalization has affected the way investors look at their portfolios as well. A number of prominent pension plans, for example, now consider “global equity” to be a single strategic asset class. Consultants, too, are more frequently recommending a global equity policy benchmark as the starting point for asset allocation. MSCI has provided insights and tools for global investing since the 1960s, when our developed market indexes gave investors the first efficient way to understand and pursue opportunity sets outside their home markets. Over the years, MSCI has continued to provide our clients with ongoing insights and tools for expanding their portfolios into new asset classes and geographies in developed, emerging and frontier markets.
A report MSCI prepared for the Ministry of Finance of Norway explored equity allocation of portfolio capital across different geographical areas. It drew on insights gathered globally by MSCI through interactions with large pension funds and sovereign wealth funds.
The report focuses on three topics: (1) The implications of weighting schemes, including those based on market-capitalization and GDP, (2) The implications of having greater/lower concentration of the portfolio in US and Europe equity investments, and (3) the characteristics of emerging markets and their risks and rewards.
Many global investors have overlooked the potential strategic role of China A-shares. MSCI’s research team asserts that, valuation and investment outlook considerations aside, adding China A-shares to a global equity portfolio could provide diversification and help capture a long-term economic growth premium.
In a recent paper, authors Chin Ping Chia and Qi Wang found that, by combining the MSCI China and MSCI China A indexes, one can potentially capture revenue opportunities equivalent to 65% of China’s GDP. This is a powerful argument as to why investors might consider a more comprehensive China portfolio.
MSCI ACWI is the industry’s accepted gauge of global stock market activity. Comprised of over 2,400 constituents, it provides a seamless, modern and fully integrated view across all sources of equity returns in 46 developed and emerging markets.
The Barra Global Equity Model is designed to help global equity managers better construct and manage risk-adjusted portfolios across developed, emerging and frontier markets. With its extensively researched and intuitive fundamental factors, fund managers can use the model to identify sources of global equity returns that are common across a broad set of securities and estimate their associated risks.
This Barra risk model has been specifically developed for global equity portfolio management and construction, and leverages MSCI’s experience in developing and maintaining global equity multi-factor models and indexes.
Economic exposure indexes are becoming increasingly important as companies expand their global operations. A company’s exposure to country risk emanates not only from where the firm is incorporated or traded but also from where it does business. MSCI’s family of Economic Exposure Indexes has made it possible for investors to obtain a better understanding of the revenue exposure of global and regional benchmarks.
Global investing has traditionally been a much more common practice for investors in emerging markets than for those in high-growth economies. This changed with the recent global financial crisis and many institutional investors from developed countries are now taking a more global approach.
A paper by MSCI researchers Chin Ping Chia and Billy Ho lays out the foundations and benefits of global investing for these investors. It demonstrates that a global equity framework can provide diversification and higher long-term risk-adjusted returns for investors from high growth countries.