Minor insight on major asset classes

23Aug06

We earlier noted a piece by James Picerno at the Capital Spectator that explores some capital market assumptions produced by the investment consulting firm, EnnisKnupp. The document, EnnisKnupp Capital Markets Modeling Assumptions – July 2006 is available at their website.

Their insights into the asset allocation model process are interesting in that they provide some much needed longer term perspective on the fundamental building blocks behind portfolio construction. However while we were reading the report we found another item of interest as well. Exhibit 2 shows some estimates for the world total investable market capitalization.

TICM.pdf

Graphic source: Exhibit 2, EnnisKnupp Capital Markets Modeling Assumptions – July 2006

The minor insight we took away was that we, and most of the blogosophere, spend a great deal of time discussing the domestic stock market, and to a lesser degree the global stock markets. When, in fact, there is a whole world of additional asset classes out there. By these estimates the global stock markets, including emerging markets, make up only 39.6% of the total capital market.

If nothing else we hope this graphic prods you into thinking about the broader capital markets, and what if any, opportunities may lie in areas in areas that make up roughly 60% of the investable world. We do not have any particular insights into these other classes, but it is hard to imagine that there is nothing of interest out there.

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