Why portfolios shouldn’t be just geographic


    Take the semiconductor business, where computer chip and communication circuit manufacturers supply a variety of end markets including smartphones, personal computers, automobiles and cloud computer server systems.

    Black stated that the global opportunity consists of 42 companies valued at more than $ 1.3 trillion based on the components listed in the semiconductor subsector of the MSCI ACWI as of September 30, 2016.

    If this were restricted by the seat, a US-American orientation would limit the selection to 17 companies and exclude the possibility of owning shares in Taiwan Semiconductor Manufacturing (TSMC), the largest component of the index by market value and a highly specialized manufacturer of microchips with Madeto contract for Apple and leading US semiconductor companies.

    “Being involved in US businesses has been beneficial to TSMC. The Taiwan-listed company generated more than 64% of its sales in the United States in 2016. As can be seen in the chart below, top quartile funds whose managers have the flexibility to invest globally have outperformed the index.

    For the 20-year period ended December 31, 2018, Morningstar’s top quartile of global funds outperformed the S&P 500 by 390 basis points and the MSCI All Country World Index (ACWI) by 500 basis points. Additionally, despite significant headwinds in international stocks, they have overall matched – and slightly outperformed – the top quartile of US equity funds, showing that above average funds can potentially capture the value of global opportunity. “


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