MutualFundWire.com: A MarketWatch Guest Columnist Calls Out Global Funds

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Thursday, March 28, 2013

A MarketWatch Guest Columnist Calls Out Global Funds

Attention PMs for global funds: MarketWatch is telling consumers that you may not be maximizing their returns.

An article by Roberto Rigobon, a Society of Sloan Fellows Professor of Applied Economics at MIT’s Sloan School of Management is saying that global funds don't diversify well enough and could potentially have up to 2 percent better returns.

The analysis is based on data from the past ten years:

We compared the performance of specialized country funds to the results of global funds. Our analysis shows that global funds could see additional risk-adjusted returns of 2.6%-5.5% per year if they invested in portfolios that include holdings similar to those of the country funds.

What’s driving this discrepancy? Our research suggests that it’s due to the restrictive number of stocks that global funds hold.

Both specialized and global mutual funds own a similar number of stocks, typically around 100 — even though the pool of investable assets is considerably bigger for global funds. As a result, within each region of exposure, global funds hold a fewer number of assets from fewer countries compared to specialized funds within the same mutual fund family.