In this article, we explore the implications of increasing globalisation and market concentration for discretionary fund managers (DFMs), questioning the continued effectiveness of geographic allocation as a tool for portfolio diversification.
We also examine how shifting perceptions among DFMs may signal a need to adopt sector-based allocation strategies to better navigate today’s interconnected investment landscape.
Key Takeaways
- Geographic Allocation is Losing Relevance: Globalisation and US market dominance have made regional equity allocation increasingly binary, with the US overshadowing all other markets. This limits the effectiveness of country-level tactical tilts.
- Sector-Based Allocation Offers Greater Flexibility: Sectors show lower correlations than countries and provide a broader opportunity set. Simulations and effective count analysis suggest sector-focused strategies allow DFMs to generate more differentiated outcomes.
- DFMs Must Evolve Their Investment Frameworks: To stay competitive, DFMs may need to shift from geographic to sector-based thinking—revisiting their philosophy, processes, and reporting systems to better capture opportunities in a concentrated global market.
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