Domestic Focus Inappropriate in Terms of Managing Risk Says BNY Mellon Firm
Despite the outperformance of U.S. equities versus other major regions in 2011 and 2012 to date, BNY Mellon's Newton* asserts that the case for a global approach to investing is as strong as ever in its most recent report on investing globally.
"A global investment manager typically has 'real-time' flexibility in asset allocation," said Paul Markham, global equity portfolio manager at Newton. "If market conditions change, the active global manager can make asset allocation adjustments immediately on behalf of a client. In hindsight of the recent past, the argument for a U.S. domestic approach has appeared to be strengthened as U.S. equities have done well in a highly uncertain environment. However, in studying a global approach over a longer timeframe, we conclude that a U.S. domestic focus is inappropriate in terms of managing/harnessing risk," he continued.
The paper states that by introducing global exposure to their bond portfolios, investors would have generated stronger returns over the last 10 years than they would have achieved from a portfolio of U.S. government bonds alone.
Newton anticipates that some developing markets will provide highly attractive opportunities to U.S.-based investors in the years ahead. By contrast, Newton believes that a number of developed world markets are likely to face some significant structural (debt-related) challenges.
"We believe a multi-asset approach enables a full realization of the benefits of a global investment perspective," Markham concluded. A single portfolio vs. a segmented fund-of-funds approach can allow the manager to be aware of all the investment risks in the portfolio, as well as to compare the relative attractiveness of different regions, sectors, and asset classes in a dispassionate and timely manner not always available to the specialist manager, the Newton study says.