Do Country Weights Matter?

A lot of investors are home biased simply because they tend to buy companies and names they know.

I also know active investors who do not care much about country weights at all. They are trying to find undervalued businesses that they believe offer higher expected returns, regardless of where those businesses happen to be located.

Then there are investors who have a strong preference for staying very close to global market-cap weights.

I’m curious about the reasoning behind that last approach beyond simply saying, “that’s what the market cap is.”

Do you care about country weights? If you try to stay close to market-cap weights, why do you prefer that allocation? Do you see it mainly as the best neutral starting point, or do you actually think it is close to optimal for an individual investor?

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23 Comments

Max Penders

@mjpenders · 1dEdited

As Fama said, you have to talk yourself out of global market cap weighting. Under our starting assumption that markets are efficient, a market cap weighting places no bet that the market is incorrectly allocated to specific countries. If you diverge from that, you are likely making the bet that markets are wrong.

Mike L

@noviceadvisor · 1d

I wouldn't want to have 50% weighting in the Kospi that's for sure

Michael L@sonofrely · 1d

Strongly believe country weights are important for indexes.

If you're stock picking weighting doesn't matter unless it's 100% dependant on the country.

For example, I have 9% of my portfolio in $BN, but I don't consider that as 9% CAD exposure as it's a global business.

Meanwhile, I also own about 8% $MELI, which I WOULD consider emerging markets exposure and would be hesitant to add more.

Raj @double_oh · 1d

I think this is a real problem in Canada.
While we have some companies with exposure to other countires (yes $BN is a good example mentioned here), we have nowhere near the scale that the US has with it's huge, global powerhouses.

This is the reason I am mostly invested in US companies in the RRSP.
The tax treaty with the US makes an RRSP the optimal place to hold their stocks.

For global exposure it's tough to beat $AAPL , $MA , $V , etc (just too many to name).
So for those of you in an index that follows the S&P 500, I think you have plenty of global exposure already.

Michael Conroy@conroy119 · 2h

The home bias arguments are very weak to me. There are many flaws with it.

You also cant completely dismiss some of those arguments. Such as taxes.

So for me, its sorta in the middle. My wife has the *EQT, and my portfolio is very underweight. Overall about a 10% allocation to Canada.

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