We present a framework to analyze market-capitalization-weighted indexes’ role in setting equity-risk-premium and capital-market expectations. It breaks return drivers into dividend yield, sales-per-share growth, profit margin and valuation change.

China provides global equity investors a unique set of opportunities and challenges as they evaluate a potential dedicated investment program and how to approach asset allocation from policy configuration to portfolio implementation.

The emerging-market (EM) equity segment has evolved substantially during the two and a half years since MSCI announced the inclusion of China A shares in the MSCI Emerging Markets Index.

With the partial inclusion of China A shares in the MSCI ACWI and Emerging Market Indexes, institutional investors are reconsidering how Chinese equities fit into their global and emerging-market portfolios. In this paper, we analyze and contrast different ways of configuring policy benchmarks, considering two broad options: an “integrated option,” with China as an indispensable part of a wider equity opportunity set; and a “dedicated option,” where China is treated as a separate equity...

MSCI’s recent announcement that it will add 222 China A shares to its key benchmarks raises practical questions for global and emerging market investors: How does it affect their investment policy? How can they implement these exposures (whether or not they already have China A shares in their portfolios)? While inclusion of China A shares is a year away, institutional investors may want to start planning for how this change may affect their portfolios.  Longer term, if China continues...

In the past, institutional investors largely ignored currency hedging in their international equity portfolios. With the globalization of the equity portfolio and recent market volatility, they no longer can afford to do so. However, how to hedge foreign-exchange exposure is receiving renewed scrutiny. Static hedges have delivered higher risk-adjusted returns compared with unhedged portfolios over a long-term horizon. The static hedge, however, faces challenges in adapting to changing market...

Ever since central banks slashed interest rates in response to the Global Financial Crisis, many institutional and retail investors turned to high dividend-paying equities to meet their needs for income. However, a naïve high-yielding equity strategy can expose itself to various “yield traps,” such as those stemming from temporarily high earnings, high payouts or low stock price. We find that the yield factor has tended to perform well during a structurally low and rising interest rate...