OBSERVATIONS | BUILDING GLOBAL EQUITY PORTFOLIOS
Global equities can provide significant benefits to a diversified investment portfolio, ranging from higher return opportunities, enhanced portfolio diversification, as well as exposure to specific themes and currencies. At Crestone, when we build global equity portfolios for our clients, we aim to provide ample diversification across regions, sectors, market capitalisation and style.
In this Observations piece, we provide an overview of how we approach the construction of global equity portfolios, the strategies and styles we adopt to build resilience and maximise opportunity within the portfolio, as well as some of the pitfalls investors should be aware of.
- MSCI indexes are a good starting point for constructing and monitoring portfolios from an investable universe perspective. Consequently, investors will often design portfolios that aim to beat the MSCI All Country World index.
- From a strategy and style perspective, we separate our strategies into benchmark-aware/core, quality, growth, value, high conviction, small to mid-caps caps, quantitative and regional markets.
- Depending on the size of the portfolio, five to eight strategies are ideal for a typical global equity portfolio. As there is generally a desire to reduce the sensitivity of the overall portfolio, this means most exposure should be core, as core strategies help to reduce benchmark risk.
- High-conviction strategies tend to be benchmark unaware with high tracking error and can take on the characteristics of growth and/or value at different points in the cycle. However, the global universe is much broader than the stocks that a high-conviction strategy would generally hold. This means that the investor’s portfolio may lack diversification and is under-exposed to the broader investment universe.
- There are several additional ways investors can potentially enhance returns from their portfolio, and this includes investing in less researched parts of the market, as well as thematic-based and other opportunistic strategies.