Apr 24, 2009
Q & A
I represent an endowment of about $30 million. In public equities we have most of our investments in market-wide mutual funds. What mix would you recommend between domestic, international and emerging markets for the public equity part of our portfolio?
EFF/KRF: There is no single right answer to this question. If there were one answer, it would have to be the market portfolio of domestic, international, and emerging stocks, since that is the only portfolio that can be held by everyone. Different tastes and circumstances, however, push investors away from the market portfolio and the optimal deviations vary across investors. For example, perhaps because of exchange rate uncertainty, people tend to overweight their domestic market. Similarly, some investors are happy to increase their expected return by tilting toward small stocks, while others prefer to reduce their risk by tilting toward large caps. It is important to diversify, but there is no single optimal mix.
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ABOUT FAMA AND FRENCH
Eugene F. Fama
The Robert R.
McCormick Distinguished
Service Professor of
Finance at the University
of Chicago Booth School
of Business
Kenneth R. French
The Carl E. and Catherine
M. Heidt Professor of
Finance at the Tuck
School of Business at
Dartmouth College
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Dimensional Fund Advisors Ltd. is authorised and regulated in the United Kingdom by the Financial Services Authority (FRN: 150100), is registered in England and Wales under Company No. 02569601 and VAT No. 577327607. The registered office address of Dimensional Fund Advisors Ltd. is 7 Down Street, London, W1J 7AJ, United Kingdom. Dimensional Fund Advisors Ltd. is a subsidiary of Dimensional Fund Advisors.