Equity diversification in the global economy??

[laila]

Still mulling over investment options. Is investing 70% of my capital in variety of ishares ETF's in US S&P or Russell suites, DJ EU Eurostoxx and UK FTSE indexes really a good equity diversification - are all these indexs more or less sychronising in our global economy? If yes then should I just stick to the euro zone and save myself the currency hassle?

With regard to diversification of sectors I am thinking that these are built in to the above indexes. (Also intend investing 10% in emerging markets, 10% in cash, 10% direct Irish equities).

If I go ahead with my proposed 70% allocation if possible should I seek to keep the $ in a doller account and £ in £ account - until the exchange rate improves.

As always any comments very much appreciated.

 

[dunkamania]

Global markets do move together far more than the fundamentals suggest they should, in times of extreme stress (now), but they do diverge over time.

There significant sector differences between the markets you mentioned, so not necessairily built in.

It looks to me like you are underweight emerging markets, Brazil China India Russia, as well as rest of Asia may deserve more than 10% of your allocation, depending on your horizon.

 

[PMU]

Is investing 70% of my capital in variety of ishares ETF's in US S&P or Russell suites, DJ EU Eurostoxx and UK FTSE indexes really a good equity diversification

If you invest this way you are investing in just 2 asset classes, i.e.: foreign developed equities (US S&P / Russell and UK FTSE) and domestic (i.e. EU denominated) developed equities (DJ EU Eurostoxx).

Also intend investing 10% in emerging markets, 10% in cash, 10% direct Irish equities)

Emerging markets is an asset class but Irish equities are just a tilt in domestic developed equities. Personally, I wouldn’t (and I don’t) put 10% of my investment in IE equities, they make up just 1% of world market cap).

Cash is not an asset class, it’s just something you hold as a precaution against personal risk (i.e. losing you job or short term money needs, e.g. for a car, deposit for a house), etc. If you hold large cash balances you need a way to protect them against inflation.


You should also consider investing in, for example, commodities, global property and foreign government debt as asset classes. You can do all this via ETFs. You could look at a few examples of asset allocation, or get ideas for potential asset classes, from sources such as the NTMA’s National Pension Reserve Fund http://www.ntma.ie or Jim Swenson’s Yale Pension Fund http://seekingalpha.com/article/41738-how-to-invest-like-yale-s-david-swensen
for ideas. (Or read Rodger Gibson’s book Asset Allocation: Balancing Financial Risk).

If I go ahead with my proposed 70% allocation if possible should I seek to keep the $ in a doller account and £ in £ account - until the exchange rate improves.

ETFs have base currencies, but you have to buy and sell them in euro, assuming you buy through an Irish broker.

 

[laila]

Thanks for replies. PMU - had a look at commodities ETF on Lyxor seems good. I could add this to my portfolio now but as commodities seem to be at an all time high would I be better to leave this portion of my portfolio to a more average time?

From looking at the UK ETF's I am now thinking of reducing my UK exposure to picking one stock from each of the sectors in the FTSE 100. Overall the track record for the FTSE ETF did not seem as good as the Eurostoxx so was going to throw a bit more that way??

Guess there is not much room for sentiment - have thought of ditching the Irish shares myself but might still stock pick a few individual companies.

Will have to think more about foreign property ETF's - have an investment property here and was looking on that as covering the property assett class.

Thanks again.