What are the global market cap weights today?

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simplesauce
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What are the global market cap weights today?

Postby simplesauce » Fri Jan 20, 2017 6:21 pm

For stocks, how much of the world is US, Developed, and Emerging?

Similarly, how much of the bond market is US and international?

Vanguard recommends 60/40 (US/Int'l) for stocks and 70/30 (US/Int'l) for bonds.

I would like to follow the market weightings so I don't make any biases or bets. However, I know Bogle and others say to overweight the US if you live here. Does that hold merits?

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Steadfast
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Re: What are the global market cap weights today?

Postby Steadfast » Fri Jan 20, 2017 6:30 pm

We don't see things as they are, we see things as we are.

gtwhitegold
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Re: What are the global market cap weights today?

Postby gtwhitegold » Fri Jan 20, 2017 6:43 pm

My complaint with using a fund is that this is an approximation. It doesn't include Chinese 'A' Shares, stocks listed outside of their host country, or frontier market stocks. It also performs sampling of holdings, which throws things off. I'm sure that I'm missing something, but you should get the idea.


lack_ey
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Re: What are the global market cap weights today?

Postby lack_ey » Fri Jan 20, 2017 7:05 pm

Free float or not? Which countries are emerging?

Do you count short-term debt (the kinds of securities you'd find in money market funds, let's say) as bonds?

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nisiprius
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Re: What are the global market cap weights today?

Postby nisiprius » Fri Jan 20, 2017 7:09 pm

As mentioned, the weightings of the Vanguard Total World stock index funds are reasonably accurate and easy to find, and so are the weightings for the only other such fund I know, the iShares MSCI ACWI ETF, symbol ACWI. As you see they're in pretty good agreement.
Image

As lack_ey notes, there is always a considerable element of arbitrariness about where to draw the boundaries. There isn't really any such thing as the "global stock market," there are only individual country stock markets, for example. I'm a little confused myself as to whether we have "a" US stock market or whether we have a dozen or so. My assumption is that the dozen or so US stock markets are so tightly and frictionlessly connected that they equilibrate within milliseconds and behave like all intents and purposes like a single stock market, but I don't think that's true internationally.

Anyway, there's no point in trying to be too much of a purist about it.
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simplesauce
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Re: What are the global market cap weights today?

Postby simplesauce » Fri Jan 20, 2017 7:12 pm

nisiprius wrote:As mentioned, the weightings of the Vanguard Total World stock index funds are reasonably accurate and easy to find, and so are the weightings for the only other such fund I know, the iShares MSCI ACWI ETF, symbol ACWI. As you see they're in pretty good agreement.
Image

As lack_ey notes, there is always a considerable element of arbitrariness about where to draw the boundaries. There isn't really any such thing as the "global stock market," there are only individual country stock markets, for example. I'm a little confused myself as to whether we have "a" US stock market or whether we have a dozen or so. My assumption is that the dozen or so US stock markets are so tightly and frictionlessly connected that they equilibrate within milliseconds and behave like all intents and purposes like a single stock market, but I don't think that's true internationally.

Anyway, there's no point in trying to be too much of a purist about it.


Thank you. Does the argument that "Emerging Markets are underweight" hold any merit? Something about floated shares and government controlled shares. Burton Malkiel says EM ought to be closer to 10-15% of a portfolio.

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nisiprius
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Re: What are the global market cap weights today?

Postby nisiprius » Fri Jan 20, 2017 7:14 pm

simplesauce wrote:...I would like to follow the market weightings so I don't make any biases or bets. However, I know Bogle and others say to overweight the US if you live here. Does that hold merits?...
In my opinion it does have some merit. A more important question, I think, is "how much does it actually matter?" And a much more important question is, "how do I choose an allocation that I am personally likely to stay the course in?"
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lack_ey
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Re: What are the global market cap weights today?

Postby lack_ey » Fri Jan 20, 2017 7:24 pm

Most common global stock indexes are free float adjusted (don't count the shares that are tightly held from say the founder/family if applicable and don't count any part that's government owned), which makes a bigger deal in EM, and exclude the mainland Chinese market (A Shares) from any weighting because there are tight controls on how much outsiders can invest into that market and most institutions don't have access or don't have a lot. So the total amount of equity in EM as a percentage of total amount of equity of all publicly traded stocks in the world is significantly larger than the percentage of EM you see in the indexes. On the other hand, the percentage of EM in the indexes probably better reflects some concept of a global market of stocks.

Which is more appropriate depends on your purpose and perspective.

Some biases and bets are generally unavoidable, especially in fixed income. And it would cost more to attempt some greater adherence to some bias-free purity. All the while, no matter what you do, you can't own representative slices of the hugely important real estate or private equity/businesses. Just give it up.

Even in public equity, considering different conditions for frictions/costs/taxation and currency exchange rate effects it's not obvious you should actually seek to be bias-free. In fact, there are good arguments against.

asset_chaos
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Re: What are the global market cap weights today?

Postby asset_chaos » Sat Jan 21, 2017 3:59 pm

simplesauce wrote:I would like to follow the market weightings so I don't make any biases or bets. However, I know Bogle and others say to overweight the US if you live here. Does that hold merits?

My stock investments are close to global market weight, but my total portfolio is still tilted to the US because all my bonds are US. Despite such conversations almost always focusing on stocks or bonds in isolation, I still prefer the total portfolio view.

If you do must just consider stocks, then I think the appropriate thought process is to start from the total global stock market and ask are there cost, tax, or personal emotional proclivity reasons such that its clearly sensible to tilt towards your home stock market. For the US investor there are small tax and cost reasons that could add up to a sensible case for some home tilt. I think the large tilts observed, however, are mostly down to emotional reasons. Which is ok if it helps people stick with their portfolio plan through all market conditions.
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galeno
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Re: What are the global market cap weights today?

Postby galeno » Sat Jan 21, 2017 4:06 pm

We are USA-NRAs. For us, USA equities are over-valued and charge the highest (level 1) dividend taxes at 15%.

Developed non-USA equities charge us a 7.5% level 1 dividend tax. Better values vs USA equities.

EM equities charge us a 11.3% level 1 dividend tax. Better values vs non-USA developed and USA equities.

That said, we use one all world equity ETF called VWRD (Vanguard Ireland's version of VT). It holds around 55% USA equities.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 2.8%. TER = 0.5%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

asset_chaos
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Re: What are the global market cap weights today?

Postby asset_chaos » Sat Jan 21, 2017 4:29 pm

simplesauce wrote:Does the argument that "Emerging Markets are underweight" hold any merit? Something about floated shares and government controlled shares. Burton Malkiel says EM ought to be closer to 10-15% of a portfolio.

The way Vanguard (or FTSE) defines emerging market puts its global weight at 8-9 percent. That's not far off Malkiel's 10-15 "target". Remember too that these weights fluctuate and are not set in stone. I seem to recall that emerging markets did very well after the 2000 US stock declines and by 2008 emerging markets were close to 15% of the global stock market. Since, of course, developed markets have done relatively better.

By the way, one of the merits of a total world type stock index fund is that it obliterates the distinction of emerging and developed, foreign and domestic, being weighted by the market cap of the individual companies, regardless of where those companies have chosen to list their stocks. (As an aside, is a South African company that lists on the London stock exchange considered emerging or developed? What about a Chinese company that lists on the NYSE?) With total world, unless you explicitly choose to look at the sub-component markets and compare them, all you need see is a basket of stocks---of enterprises---that you own, which could eliminate one or more sources of investment anxiety.
Regards, | | | | Guy

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Lieutenant.Columbo
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Re: What are the global market cap weights today?

Postby Lieutenant.Columbo » Thu Apr 20, 2017 8:13 pm

I'm restarting this Topic where it was left off 3 months ago
nisiprius wrote:As mentioned, the weightings of the Vanguard Total World stock index funds are reasonably accurate and easy to find, and so are the weightings for the only other such fund I know, the iShares MSCI ACWI ETF, symbol ACWI. As you see they're in pretty good agreement.
Image

As lack_ey notes, there is always a considerable element of arbitrariness about where to draw the boundaries. There isn't really any such thing as the "global stock market," there are only individual country stock markets [...]

Anyway, there's no point in trying to be too much of a purist about it.
lack_ey wrote:Most common global stock indexes are free float adjusted (don't count the shares that are tightly held from say the founder/family if applicable and don't count any part that's government owned), which makes a bigger deal in EM, and exclude the mainland Chinese market (A Shares) from any weighting because there are tight controls on how much outsiders can invest into that market and most institutions don't have access or don't have a lot. So the total amount of equity in EM as a percentage of total amount of equity of all publicly traded stocks in the world is significantly larger than the percentage of EM you see in the indexes. On the other hand, the percentage of EM in the indexes probably better reflects some concept of a global market of stocks...
I find interesting that the latest M* data, and when leaving out the "cash" and "other" slices, the ratio of USA equities to USA+NonUSA is actually 54.11% in VTWSX (versus 54.81% on Dec 31 2016) and 53.14% in ACWI (versus 53.33% on Jan 18 2017).

I realize these differences are not significant. They may be one day as the market cap continues to change over time.
The two questions I have are:
1. if one should stick to the US-to-NonUS ratio that was current when one set up the investing plan, or if one should update one's US-to-NonUS ratio when the actual market cap significantly changes with time.
2. if the market cap weighted indexes as a reference for setting one's US-to-NonUS ratio apply when one's portfolio is heavily tilted (to Small Value, in my case)

Thank you. (Edited to stay "on Topic.)
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Ari
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Re: What are the global market cap weights today?

Postby Ari » Fri Apr 21, 2017 12:02 pm

I'd say the market cap-weighted portfolio is heavily tilted towards the US already. 50% in a single country. That's not very good diversification.
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Lieutenant.Columbo
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Re: What are the global market cap weights today?

Postby Lieutenant.Columbo » Fri Apr 21, 2017 12:42 pm

Ari wrote:I'd say the market cap-weighted portfolio is heavily tilted towards the US already. 50% in a single country. That's not very good diversification.
Ari,
How do you go about diversifying your market exposure across the Globe? Thanks.
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Ari
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Re: What are the global market cap weights today?

Postby Ari » Sat Apr 22, 2017 7:05 am

Lieutenant.Columbo wrote:Ari,
How do you go about diversifying your market exposure across the Globe? Thanks.

Well, I'm not an American, so I'm not sure it is applicable to a lot of the Bogleheads, but I divide my holdings in three funds, which are:

Swedish stocks 40%
World stocks 40%
Emerging market stocks 20%

I have far too much in Swedish stocks to really complain about Americans owning 50% American. :) But at least I try to diversify a bit, increasing my EM exposure so I don't just hold developed markets. Since my home country is such a small part of the market, I think it still makes sense for me to overweight it (I don't think it makes sense for Americans to do so), but I really ought to cut back on it a bit. The reason I haven't is because it's a great fund with 0% ER, and because It's hard to me to increase my global allocation right now with US valuations being so high.

But I'm still pondering over what my actual allocation should be. I'll probably keep learning and thinking for some time before making the change, but I don't think there's anything magical about cap weighting, except that you don't need to rebalance. I think it makes sense to increase your EM allocation from cap weight, since they don't move in lockstep with developed markets.
All in, all the time.

selters
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Re: What are the global market cap weights today?

Postby selters » Sat Apr 22, 2017 8:17 am

lack_ey wrote:Free float or not?


Do you have the numbers for non-float adjusted market cap weights?


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