While non-U.S. institutional investors may have a larger percentage of their portfolio allocated to foreign assets than their American counterparts, they actually have a stronger domestic bias relative to the size of their home markets. But, as Michael Cantara with MFS Investment Management pointed out at the DC Investment Forum, emerging markets are growing and their significance is increasing, which will impact market returns going forward.

Currently, 80% of the world’s population lives in emerging markets and make up 28% of the world’s GDP—approximately the same as the U.S.

“They will have much more significance on consumers, on companies and we will see much more competition,” Cantara said, adding, “I’m not here to say ‘invest more in emerging markets’, I’m hear to say that emerging markets have a big influence on how we think about investing.”

Cantara insisted that investors look at investing from a global perspective. “Where a company is headquartered is really less important today than where their revenue is coming from.”

But why is global investing an attractive option? It allows a single manager to identify and compare opportunities across the world rather than integrating multiple regional managers to create a global portfolio. There is more opportunity and fewer regional constraints in global investing and managers can take full advantage of bottom-up, sector-oriented global research. “I believe that a larger opportunity set really allows and enables a manager to add more value over time,” he said.

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Do you have a global portfolio?

According to Cantara’s presentation, there are several misconceptions among managers when it comes to global investing. The first is: a plan sponsor is investing globally as long as it has investments in every region. In reality, global investing is much more than that. Cantara said that a combination of best regional investing does not equal best global investments, and that investors tend to under-invest outside their home countries. Statistics from Greenwich Associates show that in Canada, the equity allocation of a portfolio is generally comprised of 41% domestic holdings and 59% foreign. However, Canada’s weighting in the MSCI All Country World Index is just 4%.

The second misconception is: a manager can easily combine regional portfolios into a global portfolio. Cantara argued that, in fact, integrated investing in a single global portfolio is key and that managers add value through selecting stock from around the world.

He concluded by saying, “Integrated global equity certainly has a role in any investment portfolio because of the ability to separate winner and losers, as long as you’re looking at the entire sector and on a global basis, and add value.”

To comment on this story, email april.scottclarke@rci.rogers.com.