GLOBAL - Diversity in equity portfolios through global exposure should be complemented with investment in other asset classes, said Roger Urwin, global head of investment consulting at Watson Wyatt.
Urwin spoke of the role macro risk factors play as the world moves towards a greater globalised state and explained that consideration of these issues could lead to improvement in asset model assumptions, portfolio construction and global equity benchmarks, among other things.
“These improvement are about managing risks and exploiting investment opportunities,” Urwin said.
In its Global Investment Review 2006, Watson Wyatt identified demographics, the environment, the “Chindia” effect, energy, public policy, geopolitics and sentiment as the global factor most likely to effect investment portfolios.
As a result, the company is planning to establish indices for each of these macro factors which will enable it to gauge changes and associated risks in the long term.
“Although investment managers have given these factors a lot of thought, it is less clear how they have been factored into their portfolios or whether they form part of their stock selection or asset allocation decisions,” continued Urwin.
He claimed the right level of engagement required around these issues to elevate them to their rightful position of importance is still to be seen.
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