Unpacking Global Sectors

Investors focusing solely on a domestic
U.S. sector allocation strategy might be missing out.

 

Recently, many investors have come to two related conclusions about the market: First, sectors drive market returns; second, it can be critical to invest in global markets.

Fortunately, ETFs exist that let investors act on both of those convictions. Barclays Global Investors offers a full lineup of global sector ETFs under the iShares brand, allowing an investor to utilize the power of sectors within the
U.S. while reaching into developed and emerging international markets.

It makes sense: Businesses across the globe seem to correlate most with other companies within sector groups, even before country, region, size and style. Correlations among countries can often be explained largely by sectors and the differences in sector allocations between their respective markets. Therefore, when reaching outside the
U.S., even into emerging markets, sectors often make sense as a way to add better risk and reward possibilities and to control market exposure.

Ultimately, global returns can be explained by sector returns.

The Global Benchmark

The 10 global sector iShares ETFs represent the sector makeup of the S&P Global 1200, which represents 70 percent of the world’s market cap. The sectors are broken down from this index based on the 10 GICS (Global Industry Classification Standard) sectors, which are jointly managed by S&P and MSCI Barra. The table below shows the iShares global sector ETFs and their respective assets under management.

 

Source: iShares 10/7/09

 

The table below shows the weightings of the GICS sectors as of Sept. 30, 2009.

 

Data: Morningstar Office 9/30/09