Diversification is no longer what it used to be when it comes to investing in international equities. Global equity correlations have increased significantly following greater trade and market linkages between countries, eroding the traditional diversification benefits of investing in this asset class.
We find that the main benefit of international equity investing is in broadening the opportunity set, and skillful managers with greater flexibility to pursue cross-border investments can generate superior long-term results.
Our research published in The Journal of Portfolio Management yields several ideas for plan sponsors and investors to consider, including:
We believe capital markets and economies have evolved and become more integrated, making the rigidity of distinct equity silos less relevant today. So, it is perhaps time for investment policy to evolve in the area of international equity, this time incorporating more flexibility.