THE aims of a stockmarket index are threefold. First, to reflect what is actually going on in the market; second, to create a benchmark against which professional fund managers can be judged; and third, to allow investors to assemble well-diversified, low-cost portfolios. On all three counts, there are reasons to worry about the MSCI All-World Country Index, one of the most widely used gauges of the global stockmarket.
That is because the American market has a weighting of 54% in the index, as high as it has ever been (it reached the same level in 2002). In other words, anyone using the index to monitor the market is seeing a picture heavily distorted by Wall Street. The relative performance of international fund managers against the index will largely depend on how much exposure to America they are willing to take on. And anyone buying a tracking fund is making a big bet on the American market. Things are even worse if investors track the MSCI World Index, which covers only developed markets. In that benchmark, America’s weight is 60.5%.