7Mon
I am critical of the argumentation. The deliberate overweighting of one country, the U.S., has bubble-like features. For me, the following applies: I orient myself on the GDP of each country/continent/region in order to put their economic power in proportion to the global economy and thus to my portfolio. For me, the USA share of the savings plan is 35%. That is enough for the purpose that my own world ETF should fulfill (long-term retirement and pension protection and possibly early career exit). For the goal of medium-term asset accumulation (house building, asset accumulation in general) I see it differently. For me, an S&P500 ETF would be the first choice due to its incorruptible performance.
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@Stratege_Tim This is an understandable approach, but for me it also has some pitfalls. With a GDP weighting, you would have to allocate almost 20% to China. On the one hand, the performance of the equity markets does not speak for such a high weighting in my eyes, furthermore, you would expose 20% of your capital to a large political risk. In my eyes, however, even more relevant: With a 20% investment in China (e.g. MSCI China), one would mainly invest in companies like Alibaba, Tencent,... However, an extremely large share of the GDP is supplied by well-known global companies. Let's just take as an example the auto industry that massively produce in China or BASF that build up a chemical production there. In my eyes, a GDP weighting leads to an underweighting of the U.S., since most companies from the S&P 500 are globally active. An example of this: the GDP of the U.S. is ~23 billion, but the earnings of all companies listed in the S&P 500 is 34 billion! [Source: https://www.visualcapitalist.com/complete-breakdown-of-sp-500-companies/] In my opinion, the GDP weighting leads to misallocations, since countries are regional and companies are global. In other words, the weighting of the large countries is too low.
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•7Mon
@Mister_ultra
It is not perfect, but still better than a pure market capitalization. The "true size" of a company is rather what is really produced by the company (real economy) and not what people think they think it will be able to produce (market capitalization). In the end, it is also only a yardstick, since GDP has a quirk for its actual intended task. Maybe both approaches (capital and labor as sources for the profitability of the companies) of a whole country can be mixed proportionally and thus a more correct yardstick can be created.
It is not perfect, but still better than a pure market capitalization. The "true size" of a company is rather what is really produced by the company (real economy) and not what people think they think it will be able to produce (market capitalization). In the end, it is also only a yardstick, since GDP has a quirk for its actual intended task. Maybe both approaches (capital and labor as sources for the profitability of the companies) of a whole country can be mixed proportionally and thus a more correct yardstick can be created.
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