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Research Insight - Economic Exposure in Global Investing - October 2014

categories: Indexes, Americas, EMEAI, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Risk Management, Asia Pacific, Asset Owners, Hedge Funds, Equities, SUBRAMANIAN Madhusudan, Research Paper, GUPTA Abhishek, Asset Managers (Quant or Fundamental), general

Market capitalization-based indexes classify companies based on their country or region of domicile. This approach, however, does not reflect the sources of constituent’s revenues. In this paper, we show that the performance of companies is sensitive to the economies from which they derive their revenues, presenting potential opportunities for institutional investors. We discuss how investors can better understand their global, regional and country risk exposures, achieve global diversification through a revenue-based portfolio and use funds based on the MSCI Economic Exposure Indexes to express their investment views and complement their existing passive portfolio.

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