Aperio Group Releases New Research Paper on Implementing Emerging Market Exposure Within a Global Portfolio
Study finds that only 20% of active emerging markets managers in the Morningstar universe beat the market after-tax over 10 year period.
Sausalito, CA, August 17, 2011 --(PR.com)-- Aperio Group LLC, a financial advisory firm that manages customized equity portfolios, has announced the release of its latest research paper, The Case for Global Stock Portfolios. In this paper, Aperio Group analyzes the trade-offs of managing investment portfolios with distinct mandates for emerging markets versus a global stock portfolio approach.
Aperio Group first argues against the persistent myth that passive investing may not work in less efficient emerging markets. Michael Branch, CFA, the paper’s author, points out: “The empirical evidence disproves the premise that emerging markets managers can successfully exploit the market inefficiencies and earn outsized returns. On an after-tax basis, our research in this paper shows that only 20% of active fund managers outperformed their representative benchmark and as Morningstar pointed out in “Morningstar Investor Returns” actual investor experience is often far worse than the composite numbers would suggest.”
Branch then goes on to make the case for allocating long equity allocations globally rather than to smaller, more discreet mandates. One of his more interesting arguments for this is the potentially costly and not often discussed risks of index reconstitution. A recent example of this was MSCI’s consideration to add Korea and Taiwan to the MSCI EAFE index. This move by MSCI would have resulted in significant portfolio turnover with expensive tax consequences for investors with narrowly defined international allocations.
The distinction between domestic, international and emerging markets is becoming outdated and artificial. As Branch points out, “Correlations between emerging and developed markets continue to rise making it increasingly difficult to achieve the diversification benefits long associated with geographically-focused allocations. This is perhaps best illustrated by Coca-Cola. Coke is headquartered in Atlanta but derives approximately 80% of its revenue from outside the U.S. Is Coke an American or a foreign company?” Investors will do well to ponder this as they consider their allocation strategy.
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Aperio Group LLC based in Sausalito, California, works with both taxable and tax-exempt investors, providing customized portfolios that track a broad range of U.S. and international indexes, including the Standard & Poor’s 500, Russell 3000, MSCI EAFE, and MSCI ACWI.. The firm’s unique optimization approach utilizes cutting edge multi-factor risk models to design portfolios that incorporate investor values without penalizing expected returns. Assets under management at the firm are $2.1 billion.
Aperio Group first argues against the persistent myth that passive investing may not work in less efficient emerging markets. Michael Branch, CFA, the paper’s author, points out: “The empirical evidence disproves the premise that emerging markets managers can successfully exploit the market inefficiencies and earn outsized returns. On an after-tax basis, our research in this paper shows that only 20% of active fund managers outperformed their representative benchmark and as Morningstar pointed out in “Morningstar Investor Returns” actual investor experience is often far worse than the composite numbers would suggest.”
Branch then goes on to make the case for allocating long equity allocations globally rather than to smaller, more discreet mandates. One of his more interesting arguments for this is the potentially costly and not often discussed risks of index reconstitution. A recent example of this was MSCI’s consideration to add Korea and Taiwan to the MSCI EAFE index. This move by MSCI would have resulted in significant portfolio turnover with expensive tax consequences for investors with narrowly defined international allocations.
The distinction between domestic, international and emerging markets is becoming outdated and artificial. As Branch points out, “Correlations between emerging and developed markets continue to rise making it increasingly difficult to achieve the diversification benefits long associated with geographically-focused allocations. This is perhaps best illustrated by Coca-Cola. Coke is headquartered in Atlanta but derives approximately 80% of its revenue from outside the U.S. Is Coke an American or a foreign company?” Investors will do well to ponder this as they consider their allocation strategy.
###
Aperio Group LLC based in Sausalito, California, works with both taxable and tax-exempt investors, providing customized portfolios that track a broad range of U.S. and international indexes, including the Standard & Poor’s 500, Russell 3000, MSCI EAFE, and MSCI ACWI.. The firm’s unique optimization approach utilizes cutting edge multi-factor risk models to design portfolios that incorporate investor values without penalizing expected returns. Assets under management at the firm are $2.1 billion.
Contact
Aperio Group
Paul Solli
(415) 339-4304
www.aperiogroup.com
Paul Solli
(415) 339-4304
www.aperiogroup.com
Contact
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