Emerging Markets Allocation

masonic

https://forums.moneysavingexpert.com/discussion/comment/82036731#Comment_82036731

On the implementation part, it is usually cheaper to hold a developed world index and add EM, rather than all-world plus some more EM. Some do this even at market cap weighting.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82036547#Comment_82036547

Investors in a global equity tracker have absolutely no reason to know the weightings of individual countries. All they need to know is that they are buying the average performance of every dollar invested in the market (subject to some restrictions). It does not matter at all to me that Saudi Arabia is currently 0.3% of the market (I had to look that up).

[Deleted User]

https://forums.moneysavingexpert.com/discussion/comment/82037429#Comment_82037429

So according to you, investors have "absolutely no need to know" that up to 76% of their global tracker is invested in the US market and that up to 45% of that investment is in the Tech. sector (Tech+Comms) and that 27% of that 1,332 company fund is invested in just 10 companies..….great, I'm certain investors will feel reassured, especially ones nearing retirement!!!!!! As I said, I'm done here.

https://global.morningstar.com/en-gb/investments/funds/0P000125KV/portfolio

Addendum:

Separately, for anyone with an interest in EM investing….see the following link to JP Morgan's guide to investing in Asia, which contains vast amounts of data about investing in EM and Asia, in particular, an equities correlation table for Asia/EM.

https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/guide-to-investing-in-asia/

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82037565#Comment_82037565

So according to you, investors have "absolutely no need to know" that up
to 76% of their global tracker is invested in the US market and that up
to 45% of that investment is in the Tech. sector (Tech+Comms) and that
27% of that 1,332 company fund is invested in just 10 companies..….great

They don't need to know, correct. And even worse would be to supply said statement without the context of that being the diversified, average risk and unbiased allocation. Only once they understand the latter, and the additional risk and return implications of trying to beat the market, should they consider the former.

[Deleted User]

https://forums.moneysavingexpert.com/discussion/comment/82037729#Comment_82037729

TBH I think some of you guys have lost the plot. You may believe what you've written but I couldn't disagree more. Let's leave it there rather than extend our duisagreement, I'll ask the mods to close the thread, I've already asked them to delete my account, which I understand they will do on the 30th.

OldScientist

https://forums.moneysavingexpert.com/discussion/comment/82037565#Comment_82037565

The information as to what is in a tracker is trivial to find (it is hardly hidden on most platforms). IMV, a more important question is what should be done with that information.

One approach is to use other assets (e.g., fixed income) to diversify the portfolio, although the correlation in returns between those assets over any future period will be unknown (historically, over long periods bonds have a correlation of about 0.1-0.2 with equities, but this is variable over shorter periods). Over the last 20 years, the correlation between DM and EM equities is generally much higher than this (around 0.7 to 0.8) except during periods of crisis where it has fallen to as low as 0.3 (e.g., see https://www.msci.com/research-and-insights/blog-post/emerging-markets-in-a-world-beyond-us-exceptionalism ). In other words, bonds are generally a better diversifier than using a different subset of equities.

Another approach (the one in the paper in your OP) is to use historical data to determine the 'optimal' allocation of one asset (in this case, EM equities) compared to another (DM equities). However, to gain the, relatively small, advantages from such an analysis, two things need to be acknowledged - firstly that the optimal allocation needs to be held for a long period (whatever 'long' means in this case) and secondly that different historical periods have had different optimal values and therefore what was the optimal allocation in the past may not be the optimal allocation in the future. In other words, choosing to hold, for example, 25% EM equities may or may not prove to be a good decision over the next 10 or 20 years.

A third approach is to acknowledge that which regions will outperform in future is unpredictable and therefore do nothing (i.e., retain market weight).

aroominyork

https://forums.moneysavingexpert.com/discussion/comment/82037794#Comment_82037794

You can stop posting to this thread (as you have said more than once you would do) and even close your account, but the fact that you started the thread does not mean you should have sway over whether it is closed. Whether/how investors should think about a country having the majority share of world indices (combined with the US’s tech/comms strength) is an important question which others may wish to continue discussing. A divergence of opinion does not mean others have ‘lost the plot’.

I find it curious that no one has referred back to Japan…

(Image removed by Forum Team)

[Deleted User]

https://forums.moneysavingexpert.com/discussion/comment/82037831#Comment_82037831

The country and sector share of global trackers was an important question in February when I first started the US Investing Risk thread and tried to debate the subject….subsequently, others have pushed back against that subject being discussed further but now you think it's an important question! Oh deary me! https://forums.moneysavingexpert.com/categories/savings-investments/p4

Much of this comes across as little more than bloody mindedness from a camp that appears to advocate buying and holding index trackers for ever, regardless of the investors age or the trackers contents. Anyone who advocates differently from that view and tries to manage their funds on a shorter term basis doesn't fit in with the group view….understood.

[Deleted User]

https://forums.moneysavingexpert.com/discussion/comment/82037814#Comment_82037814

"In other words, bonds are generally a better diversifier than using a different subset of equities".

But surely, using a different subset of equities reduces that risk, perhaps not to zero or even to an optimal level but reducing the level of geographic and sector concentration, does reduce risk. Despite that, the prevailing forum advice is to not even make the investor aware of the risk, despite it being a simple matter to identify it, were they inclined to look.