If Roy Disney and Stanley Gold really want to turn up the heat on Disney ( DIS) CEO Michael Eisner, they should forget enlisting the aid of shareholder advocacy groups. Instead, they should go straight to the macabre punishment of strapping the embattled corporate potentate into an endless ride featuring "It's A Small World After All." Yes, it would be wrong and might be a violation of the Eighth Amendment, but that is why we have jurors and their associated hand signals. A small world does not concern investors unless it increases correlation of returns and reduces the potential for the diversification so central to modern portfolio theory. This has been happening in recent years to the extent where we can say that the shorter the time frame of comparison, the greater the correlation of returns between markets. Global investors can still rest comfortably in the knowledge that diversification still can be achieved over longer time periods, and that international investing does provide a de facto currency trade for better or worse.
Market-Timing in Another Form
Like their domestic brethren, international managers are slaves to indexation. And like domestic markets, there is no shortage of index benchmarks from which to choose. Here we will focus on the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) and Emerging Markets Free indices. They underlie two ETFs that trade during U.S. hours: the EFA and EEM, respectively. The EFA was launched in August 2001, and the EEM in April 2003. These ETFs reflect the action in markets whose trading hours on any given day precede, follow and overlap American trading hours.