Going Global: How Many Funds Do I Need?

Should you simply buy a single global-focussed fund or build your portfolio using various specialist regional funds?

Alastair Kellett 23 July, 2012 | 3:59PM

One of the questions investors face when building their portfolio is how granular to get when setting their asset mix. For some, a hands-off approach that uses a single fund may suffice; others will want to put their portfolio together piece by piece, adding or reducing a little here and there to fit their market views. It’s worth considering the pros and cons of each strategy, and taking a look at how the underlying characteristics of the portfolio might differ in each case.

MSCI World Index vs. Piecemeal Approach
For this exercise, we’ll make a comparison between having an exposure to the MSCI World Index, on the one hand, and on the other hand a collection of more geographically-focused indices. The latter, our home-made basket of funds, is not designed to resemble the MSCI World, nor to provide exhaustive coverage of the globe. It’s simply a naive construction based on how a reasonable person might build a global portfolio using a handful of indices. It consists of the following:

- 30% S&P 500
- 20% EURO STOXX 50
- 10% FTSE 100
- 10% FTSE China 25
- 10% MSCI EM Latin America 10/40
- 10% MSCI Japan
- 10% MSCI Pacific ex-Japan

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About Author

Alastair Kellett

Alastair Kellett  is an ETF analyst with Morningstar Europe.

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