The billionaire blueprint

My, how things have changed…

Not much more than 10 years ago, when I was with Paine Webber, the typical equity portfolio put together by financial advisors was simple, straightforward – and dead wrong:
 

• 90% in U.S. large, mid and small caps

• 10% in international

Portfolios are much more diversified these days, but investors still struggle with where to put, protect and grow their hard-earned money. One of the most common questions I get when speaking at conferences is what proportion of an equity portfolio should be invested in international and/or emerging markets?

Let’s consider a few possible guidelines…

World Stock Market Value

This is the breakdown if you look at the market value of stock markets around the world as indicated by the MSCI World Index:

• U.S. – 46%

• United Kingdom – 8%

• Japan – 7%

• Emerging markets – 21%

World GDP

Looking at world GDP paints quite a different picture:

• U.S. and Canada – 28%

• European Union (27 countries) – 30%

• Emerging markets – 32%

• Japan/Pacific – 10%

World’s Billionaires

A recent Forbes’ billionaire list paints an even more dramatic picture of how the world is changing:

• U.S. – 34%

• Emerging markets – 38%

• Europe – 25%

• Pacific Rim – 68%

Here are some highlights from the Forbes’ report:

• The number of global billionaires rose to a record 1,210 in 2011 with a combined wealth of $4.5 trillion.

• The United States still has the world’s most billionaires, with 413.

• The BRIC countries (Brazil, Russia, India and China) have 301 billionaires. The BRIC countries are now home to more billionaires than all of Europe.

• Just 10 years ago, the four BRIC countries were home to just 20 billionaires, while Europe had 144.

• In Asia, the number of billionaires has nearly tripled in the past two years to 332 with 115 in main land China alone.

It’s also interesting to see that Japan now accounts for just 2.2% of global billionaires while China is at 9.5%, Russia at 5% (the energy and commodity boom) and India is at 4.5%.

It was tedious work, but working through the list I found some surprises. Turkey has 33 billionaires, Taiwan 21 and Indonesia 13 compared to Japan with just 26. Russia had an amazing 68 billionaires on the back of high resource and energy prices.

These numbers clearly show a trend, a larger role for the Pacific Rim and emerging markets as the economic engine of the world, but the numbers also raise a couple of key questions:

• How much of the rise in emerging market concentrated wealth is due to the boom in commodity prices that are retrenching now?

• Are many of these BRIC billionaires the beneficiaries of crony capitalism and monopolies, or are they entrepreneurs building businesses in competitive markets?

The key takeaway for investors is that the world is changing fast, and your global portfolio needs to adjust. There are now 13,000 securities trading on U.S. exchanges and 63,000 trading throughout the world.

Think through what sort of international exposure fits your financial position, age, risk tolerance and personality. Then get going…

Good Investing.