allocation models don’t say this,” admitted Steven Mnuchin, a Treasury Secretary turned private-equity investor, last month, “but if I had to put money to invest for the next ten years I’d put 100% of it in theeconomy.” Although Mr Mnuchin’s patriotism may be in part ideological—for he is both an investor and a political creature—he is not alone. According to Morningstar Direct, a data firm, American fund investors hold just a sixth of their equity allocation overseas.
Americans love America, but nothing is more American than making money. Why, then, the home bias? Maybe owning foreign stocks is not necessary for geographic diversification. American firms are multinational. Growth tends to move in sync across the globe. There are risks that volatility in returns—Markowitz’s measure—cannot capture. No portfolio manager will be fired for buying American. If they invest in a country that seizes their assets, they will be shown the door.