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The New Global Geography of Investing

Many plan sponsors continue to maintain 80% or more of their equity allocation in domestic stocks, despite the fact that U.S. companies now account for only about half of the total global market capitalization and a far lower percentage of revenue. In a new white paper from Portfolio Evaluations, investment analyst Christina Popova argues that a greater global focus is required to truly diversify a portfolio’s exposure and broaden its potential sources of investment returns.

It’s critical that today’s portfolio managers avoid the home country bias that limits most individual investors, Popova argues, and move beyond viewing international equities as merely a diversifier. “While emerging and developing markets should experience a slowdown in their growth trends,” she believes, “their growth rates are expected to remain both positive and stronger than that of the U.S.”

Popova offers some data points:
  • About 75% of the world’s largest companies are now located outside the U.S.
  • The number of countries available for investment jumped from 18 in 1970 to 45 in 2010.
  • The five largest countries’ share of total market cap dropped from 88% in 1970 to 68% in 2010.
  • By 2025, emerging markets are expected to capture about half of global GDP, with China becoming the world’s largest economy.