How do we weight world equities?
In most worldwide equity indices, individual countries are weighted on the basis of market capitalization. According to the results of various academic studies, this is not an efficient method of weighting, which means that the risk-return profile of such indexed portfolios is not ideal.
In our OLZ Efficient World® Equity strategy we weight individual countries in the minimum variance portfolio which has an efficient risk-return profile. Depending on whether you want to include the domestic market in the optimization, we put together a worldwide equity portfolio (including the domestic market) or a foreign equity portfolio (excluding the domestic market). We predict the necessary data to be entered for optimization (variance-covariance matrix) using GARCH models.
OLZ does not select individual stocks but normally puts together the investments in countries and regions using stock index futures. Apart from significant cost-cutting, this enables foreign currency risks to be greatly reduced without incurring additional costs (depending on the customer's wishes), in that the collaterals are invested in the desired reference currency. All OLZ Efficient World® Equity strategies are available in hedged or unhedged form (partly as institutional funds or as a direct mandate).
