Mondial Chart of the Week: Do you know what you’re buying? 📈

27 September 2020


Source: Bloomberg & Momentum Global Investment Management

What this chart shows

It’s like buying a car on aesthetics alone. Sure, it might look appealing on the surface, but are you aware of what is underneath the bonnet? It’s a similar story when assessing the various regional options global equity investors have. This chart shows the sector allocation differences across four developed market countries/regions using headline market indices. The US concentration to technology is clearly the most stark. Bear in mind too that the likes of Amazon (consumer discretionary), Facebook, Netflix and Google (communication services), which all form part of the FAANG acronym that has become synonymous with technology, are not actually part of the technology sector. Other key differences to highlight are the UK’s greater bias to financials, materials, energy and consumer staples names (and notable lack of technology), Japan’s exposure to consumer discretionary and industrials and Europe’s tilt to healthcare, financials and industrials.

Why this chart is relevant

Investors should be aware of these differences when allocating across regions to understand likely look through positioning. It can help identify the level of economic sensitivity or cyclical risk within each region. The UK for example has larger weights in cyclical sectors (or those whose fortunes are more closely tied to the wider economic cycle), though the higher consumer staples weight helps offset this. The sectoral differences contribute to investment style exposures too. Investors in the US would typically be biased towards higher ‘growth’ companies, by virtue of the technology weight, whilst those in the UK have more ‘value’ exposure by way of the financials and energy names. Of course, this chart only reflects actual exposure if an investor holds passive index tracker funds. Unconstrained active managers who care little for benchmark weights can position very differently. Whichever your flavour, always check under the bonnet to understand exactly what you are buying.

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