Reading 19 Practice Problem 1: MSCI gross/net benchmark for domestic/foreign investors

CFA Level III Portfolio Management
#1

Hi all.

I could not quite get this question. The question asks which version of MSCI indices (i.e., gross or net) is appropriate for domestic/foreign investors.

The answer mentions two cases (not exhaustive but that’s ok):

  1. A foreign investor without tax treaties is subject to taxes so net version is suitable … This I agree with.

  2. "The net version of the global indices would probably not serve as a suitable benchmark for domestic investors because the indices incorporate an income tax that the investor may not be subject to. The gross index would be more suitable for this investor"… I am very

#2

If you are paying Japan taxes, and decide to invest in the US equity market. And assume you don’t have to pay any taxes on your US investments.

which index would represent your portfolio better? a gross before US tax S&P 500 index or a net after US tax S&P 500 index?