Global Equities: An Analysis

By M. Isi Eromosele

In today’s lively and expanding global markets, being able to gain right of entry into international markets is very important. The global stock markets represent over 50 percent of the world’s total market capitalization.

Refreshingly, U.S. and European investors have started diversifying their exposure to international stock markets. As this welcomed trend develops, investors need to be given more see-through access to global small caps to facilitate their exposure to global equities and enhanced asset allocations.

At Oseme Finance, we strongly believe that small cap companies should be incorporated as part of a comprehensive international equity strategy. For over 30 years, MSCI EAFE (Europe, Australasia and Far East) has been the leading international equity benchmark for U.S. investors.

Today, it is basically out-of-date as a benchmark for the opportunities present in the international equities market, even while it is still relevant as a proxy for large cap equities for non-U.S. developed markets.

The MSCI EAFE index covers 21 developed nations with a total market capitalization of $20 trillion. The United Kingdom, Japan and France represent more than 50 percent of the index weight. The index draws its elements from larger cap companies within the above three countries.

While most investors in the U.S. use the S & P 500 as a complete benchmark for U.S. equities, many of them accept the EAFE as the proxy for international equities. This benign arrangement restricts the portfolio choices of active United States equity managers needlessly.

It is inherently imperative that U.S. investors need to execute their international equity allocations the same way they do their U.S. ones, with the goal of achieving total universal investment coverage. This is long past due on the part of asset owners and their managers.

As a result of the benchmark gap that is inherent in using the MSCI EAFE as the universal measure for international equity markers, three important segments of the world outside the United States equity markets are underweighted: Canada, developed nations’ small caps and the emerging markets. Collectively, these three regional areas represent more than $8 trillion of market cap, a little over one-third of the total U.S. equity asset total.

Despite its incomplete benchmarking representation in the global equity market, MSCI EAFE still remains the dominant default benchmark. Institutional investors use it as a proxy for asset allocation analysis and as a performance for asset managers, while with individual investors, the bias still remains, awaiting a resolution.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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