The North–South Divide: Perspectives on Global Diversification

Abstract

A great divide exists between equity investors in developed market countries—the North—and investors in emerging market countries—the South—in their perspectives on global diversification. The investment policies of North investors typically are overweight allocations to the home market and underweight allocations to the emerging markets relative to the average global investor who has a home-market and developed-market bias. In contrast, the investment policies of South investors typically are overweight allocations to the home market and to other emerging markets, thus having a home-market and emerging-market bias. Relative to a fully global portfolio, both North and South portfolios are at risk of underperforming the average global investor, with some investors falling behind their current relative-wealth positions. Dopfel explores is the potential downside of North and South portfolios and the investors that are more likely to outperform the average global investor over the long run.

TOPICS: Portfolio construction, equity portfolio management, global