Aperio Offers Suggestions for Implementing EM Strategy

Aperio Group has published a research paper that discusses best practices for gaining emerging market exposure in a global portfolio.  

Aperio Group, a financial advisory firm that manages customized equity portfolios, has published “The Case for Global Stock Portfolios.”  The white paper analyzes the trade-offs of managing investment portfolios with distinct mandates for emerging markets versus a global stock portfolio approach.

Aperio Group argues against the persistent myth that passive investing may not work in less efficient emerging markets. “The empirical evidence disproves the premise that emerging markets managers can successfully exploit the market inefficiencies and earn outsized returns,” writes author Michael Branch, CFA. “On an after-tax basis, our research in this paper shows that only 20% of active fund managers outperformed their representative benchmark and as Morningstar pointed out in ‘Morningstar Investor Returns,’ actual investor experience is often far worse than the composite numbers would suggest.”

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Aperio calls for allocating long equity allocations globally rather than to smaller, more discreet mandates, pointing to the potentially costly and not often discussed risks of index reconstitution. A recent example of this was MSCI’s consideration to add Korea and Taiwan to the MSCI EAFE index. This move by MSCI would have resulted in significant portfolio turnover with expensive tax consequences for investors with narrowly defined international allocations.

The distinction between domestic, international and emerging markets is becoming outdated and artificial, Branch writes. “Correlations between emerging and developed markets continue to rise making it increasingly difficult to achieve the diversification benefits long associated with geographically-focused allocations. This is perhaps best illustrated by Coca-Cola. Coke is headquartered in Atlanta but derives approximately 80% of its revenue from outside the U.S. Is Coke an American or a foreign company?” Investors will do well to ponder this as they consider their allocation strategy, he suggests.

South Dakota and Kansas Have Best 529 Plans

Savingforcollege.com released its 529 Plan Composite Performance Rankings for the second quarter.  

Kansas’ Schwab 529 College Savings Plan was first among all direct-sold 529 plans in three- and five-year investment performance as of June 30, 2011, but did not place among the top 10 plans for one-year performance.

South Dakota’s CollegeAccess 529 plan, available on a direct-sold basis only to residents of South Dakota, placed first in the one-year performance category.

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“The results suggest that 529 plans using actively-managed funds can compete effectively with those programs relying exclusively on lower-cost index funds,” said Joseph Hurley, founder of Savingforcollege.com. Many states have switched to index funds in recent years in their efforts to shave expenses for plan participants; however, the 529 plans cited above have a substantial portion of their assets invested in actively-managed funds.

Hurley cautions that past performance does not guarantee future returns, and that a plan currently ranking high will not necessarily outperform its peers in the future.

The full reports showing one-year and three-year rankings for all direct-sold 529 plans can be viewed here.

Savingforcollege.com also produces rankings for adviser-sold 529 plans along with all underlying investment data, available through a subscription. Rankings are updated each quarter.

One-year Composite Performance Rankings (48 plans ranked) 

1. South Dakota: CollegeAccess 529 (Multiple fund families)

2. Alaska: T. Rowe Price College Savings Plan (T. Rowe Price funds)

3. Maine: NextGen College Investing Plan — Client Direct Series (Multiple fund families)

4. Alaska: University of Alaska College Savings Plan (T. Rowe Price funds)

5. Maryland: College Savings Plans of Maryland — College Investment Plan (T. Rowe Price funds)

6. Vermont: Vermont Higher Education Investment Plan (TIAA-CREF funds)

7. Utah: Utah Educational Savings Plan (UESP) Trust (Vanguard mutual funds)

8. Oklahoma: Oklahoma College Savings Plan (TIAA-CREF funds)

9. Michigan: Michigan Education Savings Program (TIAA-CREF funds)

10. Rhode Island CollegeBoundfund (Direct-sold, Alternative RI) (AllianceBernstein mutual funds)

Three-year Composite Performance Rankings (45 plans ranked) 

1. Kansas: Schwab 529 College Savings Plan (Multiple fund families)

2. Wisconsin: EdVest (Direct-sold) (Mostly Wells Fargo funds)

3. Maryland: College Savings Plans of Maryland -- College Investment Plan (T. Rowe Price funds)

4. Michigan: Michigan Education Savings Program (TIAA-CREF funds)

5. Alaska: University of Alaska College Savings Plan (T. Rowe Price funds)

6. New Jersey: NJBEST 529 College Savings Plan (Franklin Templeton funds)

7. Alaska: T. Rowe Price College Savings Plan (T. Rowe Price funds)

8. New York: New York's 529 College Savings Program -- Direct Plan (Vanguard funds)

9. West Virginia: SMART529 Select (Dimensional Funds)

10. Utah: Utah Educational Savings Plan (UESP) Trust (Vanguard mutual funds)

Five-year Composite Performance Rankings (36 plans ranked) 

1. Kansas: Schwab 529 College Savings Plan (Multiple fund families)

2. Michigan: Michigan Education Savings Program (TIAA-CREF funds)

3. Alaska: University of Alaska College Savings Plan (T. Rowe Price funds)

4. Maryland: College Savings Plans of Maryland -- College Investment Plan (T. Rowe Price funds)

5. Nevada: The Vanguard 529 Savings Plan    (USAA mutual funds)

6. Wisconsin: EdVest (Direct-sold) (Multiple fund families)

7. Alaska: T. Rowe Price College Savings Plan (T. Rowe Price funds)

8. Utah: Utah Educational Savings Plan (UESP) Trust (Vanguard mutual funds)

9. Virginia: Virginia Education Savings Trust (VEST) (Multiple fund families)

10. Ohio: Ohio CollegeAdvantage 529 Savings Plan (Vanguard mutual funds)

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