CHAPTER 10Global Investing
Chapter Outline
- 10.1 Introduction
- 10.2 Investing with a Global Perspective
- 10.3 Global Investment Opportunities
- 10.4 The Impact of Currency
- 10.5 International Diversification: Failure to Deliver?
- 10.6 Implications of Globalization
- 10.7 Currency Overlays: Incentive-Compatible Performance Evaluation
10.1 INTRODUCTION
Up to this point, we have not needed to distinguish between domestic and foreign investments when introducing general portfolio management techniques. All the discussion in the prior chapters applies to both domestic and international investment perspectives. However, international investing introduces additional considerations for portfolio management. The most significant of these arise from the need to manage currency exposure. Hence much of this chapter focuses on the impact of currency on portfolio decisions.
Expanding to a global investment perspective typically requires some changes for both the client and the portfolio manager. For the client, the changes entail a new or modified investment policy statement. To implement the new mandate, the portfolio manager must revamp some aspects of the investment process. The next section discusses the necessary changes in each of these areas.
If foreign markets simply offered “more of the same,” the benefits of international investing would be somewhat limited. As we show in Section 10.3, however, this is not the case. In particular, U.S. and non-U.S. markets ...