by InteractiveAdvisors
by InteractiveAdvisors
Strategies

Correcting for Home Country Bias with International Equities

by |Published

Matthew J. Bartolini, CFA, Head of SPDR Americas Research

Studies have shown that there can be a considerable disconnect between investment allocations to one’s own country and the proportional representation of that country in a global portfolio.(1) But while favoring one’s home country may be a patriotic gesture, when it comes to investing, home-country bias can be detrimental to a portfolio.


Investors remain too close to home

Home-country bias is a common phenomenon in which investors tend to allocate a large majority of their portfolio to investments in their home country. The result? Portfolios have a concentrated country exposure, limiting potential returns as well as diversification.Studies demonstrate that home-country bias is prevalent among US investors. According to the International Monetary Fund’s (IMF’s) Coordinated Portfolio Investment Survey, US investors allocate over 70% of their equity exposure to US securities.(2) However, measuring on the basis of market capitalization of equity, the US represents just 53% of the market cap weighted MSCI ACWI Index—a broad representation of 47 investable countries.(3)

Beware of portfolios to weighted to home country markets

Why does home-country bias matter?

Home-country bias wouldn’t be a concern if it didn’t have a material impact on portfolio outcomes.  There are several reasons why correcting home-country bias can improve a portfolio’s risk/return profile, as well as higher income generation potential.  

For more, please read the rest of the post originally published on the SPDR Blog on May 13.

Reference Shelf
(1)International Monetary Fund, “Coordinated Portfolio Investment Survey,” June 2016.

(2)International Monetary Fund, “Coordinated Portfolio Investment Survey,” June 2016.

(3)MSCI, as of 04/25/2019.

Photo Credit: Mike Mozart via Flickr Creative Commons

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AUTHOR

State Street Global Advisors
State Street Global Advisors
For four decades, State Street Global Advisors has served the world’s governments, institutions and financial advisors. With a rigorous, risk-aware approach built on research, analysis and market-tested experience, we build from a breadth of active and index strategies to create cost-effective solutions. As stewards, we help portfolio companies see that what is fair for people and sustainable for the planet can deliver long-term performance. And, as pioneers in index, ETF, and ESG investing, we are always inventing new ways to invest. As a result, we have become the world’s third largest asset manager with US $2.72 trillion* under our care. While State Street licenses model portfolio data enabling Interactive Advisors to build and periodically rebalance these portfolios, State Street does not have trading discretion, and it is not an adviser or fiduciary to Interactive Advisors clients investing in these portfolios. *AUM reflects approximately $32.9 billion (as of June 30, 2018), with respect to which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.

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