Global asset allocations

danm

Hi .
Is there a good reference (website link) that shows roughly what a globally allocated portfolio should be if correctly allocated (I.e US 25%, UK 10% etc)

Thanks

george4064

I typically use FTSE World, but have included link to MSCI as well. These are factsheets for indices, so you're free to select whichever one you want to view.


FTSE Index factsheets: https://www.ftserussell.com/analytics/factsheets/Home/Search


MSCI factsheets: https://www.msci.com/equity-fact-sheet-search

Alexland

There is no correct answer but for equities then buying into the fund that tracks the FTSE All Cap index is pretty close. This includes large, medium and small sized companies around the world including emerging markets. You can see the portfolio and benchmark data below.

https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-accumulation-shares/portfolio-data

Linton

There isnt an index that tracks the whole world. China in particular is a major problem. Global indexes generally ignore the smallest companies and the more obscure stock exchanges, but as the %s are by definition small it is less of an issue though not totally irrelevent.

Prism

It doesn't really matter. Global companies can base themselves where ever they want and it makes little different. You could invest 100% in the UK an be global if you wanted. Its only when you get down to smaller companies that it might matter.

Tom99

danm wrote: »

Hi .
Is there a good reference (website link) that shows roughly what a globally allocated portfolio should be if correctly allocated (I.e US 25%, UK 10% etc)
Thanks

[FONT=Verdana, sans-serif]Most investors would define correct allocation as being in the same ratio as market capitalisation which means you would probably invest 10x as much in US stocks as UK ones.[/FONT]
[FONT=Verdana, sans-serif]If you went to the supermarket for some apples and pears and there were 10x the number of apples on display as pears would you automatically buy 10 apples but only 1 pear just because that was the ratio in which they are offered to you?[/FONT]

aroominyork

Tom99 wrote: »

[FONT=Verdana, sans-serif]Most investors would define correct allocation as being in the same ratio as market capitalisation which means you would probably invest 10x as much in US stocks as UK ones.[/FONT]
[FONT=Verdana, sans-serif]If you went to the supermarket for some apples and pears and there were 10x the number of apples on display as pears would you automatically buy 10 apples but only 1 pear just because that was the ratio in which they are offered to you?[/FONT]

I think I see bowlhead appearing over the horizon, but in the meantime my twopenceworth is that if you wanted to buy a share of the global fruit market and ten times as many apples as pears are grown, you would buy ten times as many apples (or apple shares - no pun intended) as pears. If you invested half your money in kumquats you would be investing actively not passively. Similarly, if you want an index which tracks the global market and the USA accounts for 45% of global market cap, then you want 45% of your money in the USA.

MaxiRobriguez

Tom99 wrote: »

[FONT=Verdana, sans-serif]Most investors would define correct allocation as being in the same ratio as market capitalisation which means you would probably invest 10x as much in US stocks as UK ones.[/FONT]
[FONT=Verdana, sans-serif]If you went to the supermarket for some apples and pears and there were 10x the number of apples on display as pears would you automatically buy 10 apples but only 1 pear just because that was the ratio in which they are offered to you?[/FONT]

Irrelevant comparison.

We're talking about investing. Allocating by market cap is a reasonable choice, unless you want to provide some commentary on why you should allocate same percentage of your portfolio to Angola, Botswana and Turkey as you would the US.

Prism

MaxiRobriguez wrote: »

Irrelevant comparison.

We're talking about investing. Allocating by market cap is a reasonable choice, unless you want to provide some commentary on why you should allocate same percentage of your portfolio to Angola, Botswana and Turkey as you would the US.

I thought it was quite a good analogy. Although you could allocate by market cap I can't think of any particular reason why it would be any better or worse than another allocation. At the largest scale it makes almost no difference where the company is located.

MarkCarnage

First question - how do you define 'correct'? Most people above have done so as market cap weighted with no bias to country of origin, which is fair enough, and might be the default answer.

However, as mentioned above, what does this tell you? Country of listing may bear little or no relation to the economic sources of a company's revenue, profits and risks.

That's before we get into the impacts of free float, B share classes etc etc.

You may wish to consider these points - and also whether it is worth delegating that decision making either passively ( a global index tracker, but again be careful what index to choose!) or actively via a global equity fund.

Personally I think that there are a lot bigger asset allocation decisions to be made right now.

Linton

MaxiRobriguez wrote: »

Irrelevant comparison.

We're talking about investing. Allocating by market cap is a reasonable choice, unless you want to provide some commentary on why you should allocate same percentage of your portfolio to Angola, Botswana and Turkey as you would the US.

Market capitalisation geographic allocation is a reasonable choice but is arbitrary and far from being the only one nor is it in my view the optimal one. Your choice of examples is a bit extreme, but one could argue that the best reason for low exposure to Botswana and Angola is that you cannot get a reasonable sector allocation from those countries. The same is true of the UK as well at least to some extent. At the other end of the range, why have 8 times as much US as Japan or 3 times as much US as Europe (the figures are from memory)?. For smaller geographies I see no good reason for Turkey and/or Latin America not being 5% of a portfolio. The problem I find is that my ideal allocations add up to more than 100%!



Others have suggested geographic allocation is largely irrelevent as the major companies that make up most of the global index are highly correlated. However this is not true of small companies. Geography can make a major difference. Here again it seems to me to make little sense to base the geographic allocations on market cap, better to set the allocations to optimise diversification. I see no good reason why small companies should be relegated to 10-20% of a portfolio.

My own policy is to allocate geography broadly on market cap with an upper limit. Any geographic allocation beyond 40% would be completely unacceptable with 35% being my normal maximum.