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Sunil Kewalramani
Global Money Investor
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Leading Advisers For Global Asset Management to Foreign Institutional Investors and Leading Multinational Companies.

Global Diversification

The importance of global diversification

Most seasoned investors understand the benefits of diversification. Few think it wise to hold just a few stocks or invest heavily in just one sector. Intuitively it makes sense, and finance theory agrees: diversifying is central to risk management and vital to long-term investment success. Yet, most American investors aren’t nearly as diversified as they think. American investors tend to focus on US stocks. After all, America is a big country. Shouldn’t investing here be enough? The answer may surprise you. A portfolio with only US stocks misses out on an important factor — the rest of the global stock market. America represents only a little more than 50% of the world’s developed equity market (as measured by market capitalization), and less than 40% of the global economy. Imagine investing in only half of the S&P 500 sectors. Consumer Staples, but not Pharmaceuticals. Tech, but not Energy. Most agree that’s a riskier undertaking — what if you picked the worst sectors and missed the best? In the same way, a US-only portfolio can also be risky — it can lack the opportunities for both performance enhancement and risk management that you could get in a global portfolio.

Diversification

*Pacific includes Australia, Hong Kong, New Zealand and Singapore

Source: Thomson Reuters as of 12/31/2013. Values may not sum up to 100% due to rounding. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented inclusive of dividends, the effects of withholding taxes, and uses a Luxembourg tax basis.

Mr. Sunil Kewalramani is a professional money manager and a leading consultant on global asset management. He contributes regularly to leading business dailies and journals.


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