The Global Investment Outlook summarizes the country allocation recommendations of our Model for developed markets. The goal is to enhance the dollar returns of unhedged, long-only developed market equity portfolios.
Our model is built on a scoring mechanism. Each month it compares the markets under coverage on the basis of quantitative investment factors that have been shown to convey information about future equity returns in research by academics and practitioners, including ourselves. These include indicators of Valuation, Growth, Risk, Interest Rate Trends, and Sentiment/Momentum.
Each month statistical scores are computed for each factor, and a total score is computed for each country as the weighted average of the individual factor scores. The weights on each factor are determined by the strength and reliability of each factor in back tests. Each country then gets an allocation relative to the benchmark that is roughly in proportion to its total score, with restrictions on the maximum allocation possible to each market to avoid unrealistically large exposures. The model is updated each month and the performance of the hypothetical portfolio compared with the benchmark.
Unless otherwise noted, all return data are from the MSCI indices. Our passive benchmark is composed of the same 23 markets under coverage and approximates the performance of the MSCI World Index.