Assessing concentration risk in individual countries

Single-country exchange-traded funds (ETFs) and mutual funds allow investors to make tactical or long-term strategic investments in individual countries as part of an allocation to international equities. When considering such vehicles, investors should fully appreciate that the market capitalization of individual countriesespecially those characterized by relatively small stock marketscan often be concentrated in a few sectors or even just a few companies. The higher concentration risk and/or idiosyncratic risk of investing in these markets could lead to higher return volatility, often without consistently higher returns, as past Vanguard research has shown. In our view, this raises the question of whether such concentrated, single-country portfolioseven if they are index fundscan be considered broadly diversified. This brief research paper provides empirical measures of concentration risk at the sector and individual company level for individual developed and emerging markets to help potential investors determine whether such risk is appropriate for their own portfolios. Of course, they could choose to minimize concentration risk by investing in broader-market vehicles

The Vanguard Group Inc
Length of Resource
10 pages
Resource File
Yan Zilbering, David T. Kwon
Date Published
Publication Type
Resource Type

ResourceID: 72540

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