Benchmarking has flaws
Some fund managers who have a “fascination” with building portfolios around benchmarks are leaving their investors underexposed to certain growth areas as a result, according to Aberdeen’s senior investment specialist for offshore funds, Stuart James.
Speaking to Money Management, James hit out at the popularity of the MSCI World Index among international fund managers, saying that fund managers who used the index to build a benchmark portfolio for their clients weren’t giving their investors the right exposure in growth countries.
“Some fund managers have a fascination with building portfolios around benchmarks, and the MSCI world is a developed market benchmark, and the problem with benchmarks is that they’re backward looking because they’re based on market capitalisation. The benchmark reflects where the biggest companies in the world are ... and the biggest companies in the world have been in the developed markets,” he said.
“That doesn’t help me sitting here today because I want to know where the biggest companies and the best companies are going to be in the future,” James said.
The MSCI World Index, which benchmark fund managers used most commonly, had a no allocation to emerging markets, and it left investors underexposed to growth markets, he said.
The benchmark should be thrown in the bin, he added.
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