Global Style Investing

Abstract

Value-tilted global equity portfolios that are either region-neutral or industry-neutral have particular risk and return properties relative to the world index. Over 1993-2005, a global country-neutral value-tilted investment strategy earned a premium of about 1.5% per year over the world return: this comes as a result of bearing some systematic cyclical risk that is highly correlated with the performance of particular industries and also with growth-like factors. A global industry-neutral value-tilted investment strategy offers a similar return payoff but with less volatility; this return premium does not appear to be associated with any of the systematic risk factors considered, so an industry-neutral strategy seems to be the more appropriate for capturing the global value premium. Index vendors might consider constructing benchmarks that reflect this investment style.