When it comes to a portfolio’s international allocation, not all exposures are alike. Industry breakdown, currency exposures and macroeconomic factors can all contribute to performance and risk. Deconstructing global portfolios offers investors the opportunity to customize exposures based on their specific needs and constraints.
Use the iShares suite of international ETFs to customize your portfolio using different strategies, including:
Investors looking for broad global exposure might start with the MSCI All Country World Index (MSCI ACWI). Widely used by investment professionals as the measure of global equity markets, the index aims to capture 85% of the world’s equity market capitalization and combines four well-recognized benchmark indexes: MSCI EAFE, MSCI Emerging Markets, MSCI Canada and MSCI USA (see below).
The iShares MSCI ACWI Index Fund (ACWI) gives investors diversified exposure in a single trade to international and domestic countries, developed and emerging markets, and large and mid cap stocks.
Source: MSCI, as of 01/31/12. Index constituents are subject to change.
Many investors incorporate strategic allocations to developed and emerging markets, but those looking to further fine-tune exposure may consider tactically over- and underweighting regional exposures, as well. This can be accomplished in one of two ways:
- Regional tilts. Investors can start with developed and emerging markets exposure using the iShares MSCI EAFE Index Fund (EFA) and the iShares MSCI Emerging Markets Index Fund (EEM), then tactically overweight regional ETFs based on research calls or personal views.
- Unbundling. Investors can build developed and emerging markets exposure using regional funds, such as the iShares MSCI Emerging Markets Latin America Index Fund (EEML), the iShares MSCI Emerging Markets EMEA Index Fund (EEME) and the iShares MSCI Emerging Markets Asia Index Fund (EEMA).
Research shows that in global markets, country factors have had more impact on index performance than style and industry factors since the mid-2000s*. What this means for investors is that there’s opportunity to be found in managing single country exposures.
With numerous single country ETFs to choose from, iShares offers myriad options to investors looking to customize their exposure to global markets. Investors can use these ETFs to:
- Execute tactical calls. Under- or overweight a specific country based on out- or underperformance.
- Take macroeconomic views. Tilt country exposures to express an opinion on economic factors such as GDP growth and inflation.
- Hedge exposure. Correct unintended country or sector exposure through strategic hedges.
*Source: MSCI Barra, as of 2/11