Global Revenue Exposure of Your Stock Portfolio?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Global Revenue Exposure of Your Stock Portfolio?

Post by SimpleGift » Fri Mar 09, 2018 8:02 pm

Four years ago, we had a Forum topic on the global revenue exposure of various portfolio mixes of U.S. and international stocks. Since then I've received several requests via PM to update the old data. Revenue data for global stock indexes is hard to find, incomplete and often proprietary — but what's openly available can still be useful to the do-it-yourself investor, in my view.

What is revenue exposure? It's simply a breakdown of where around the world companies in a cap-weighted stock index sell their goods and services. For example, a 100% U.S. stock portfolio (at left, chart below) makes 70% of its sales domestically and 30% overseas in various world regions. As the international stock allocation increases, the percentage of overseas revenue exposure in the portfolio also naturally increases. With a 25% portfolio allocation to international stocks (middle chart), foreign revenue exposure is about 50% — and rises to over 70% with a 50% U.S./50% international allocation (the world cap-weighted portfolio, at right).
  • Image
The table below has a finer breakdown of the data for various mixes of U.S. and international cap-weighted stock indexes:
  • Image
    Sources: U.S. data from FactSet; International data from MSCI, for 2017.
How is this helpful for portfolio allocation? If, for example, an investor wanted to target the revenue exposure of her stock portfolio one-third each to the U.S. economy, to foreign developed countries and to emerging markets, then a 60% U.S./40% international cap-weighted stock mix would be about right today. This allocation is my personal choice — and I've been reluctant to adopt a world cap-weighted stock portfolio (at right above) because it has just a 28% revenue exposure to the U.S. economy.

Hope Forum members will find this updated information useful — or at least of interest. Any thoughts?
Last edited by SimpleGift on Sat Mar 10, 2018 3:00 am, edited 2 times in total.
Cordially, Todd

Angst
Posts: 1850
Joined: Sat Jun 09, 2007 11:31 am

Re: Global Revenue Exposure in Various Stock Portfolios

Post by Angst » Fri Mar 09, 2018 9:28 pm

Todd,
thank you for posting this. I remember your original thread well - it was interesting and provoked a lot of good discussion as I recall. I also remember asking you about showing the numbers for a purely international portfolio, simply for more complete perspective. You didn't have the numbers at the time and I don't think it was ever posted. (You don't have those this time, do you?) Anyhow, from looking at your top left and top right pie charts, i.e. 100% US vs. 50 US/50 Intl, I thought it actually ought to be easy to derive the 100% International numbers.

So I started doing some basic math, but I got some odd results. Can you tell me what I am doing wrong here? There was a time when I was half-decent at math... but I'm old and slow now, and kinda cranky too... anyhow,

Solving first for Emerging Markets, everything seems to make sense to me.

If X = the % for a geographic market in a 100% Intl Portfolio:

Code: Select all

Emerging Markets
(.5 * 11) + (.5 * X) = 35
    11    +     X    = 35/.5
                X    = 70 - 11 = 59% 
But solving for the US market % in a 100% INTL Portfolio comes up negative!

Code: Select all

US Market
(.5 * 70) + (.5 * X) = 28
    70    +     X    = 28/.5
                X    = 56 - 70 = -14% 
Something's not right here. Negative 14%? Any help? :confused

alex_686
Posts: 3941
Joined: Mon Feb 09, 2015 2:39 pm

Re: Global Revenue Exposure in Various Stock Portfolios

Post by alex_686 » Fri Mar 09, 2018 9:45 pm

I am not sure if this is useful information or not. I don't think it is.

Let me use Samsung as a example. It is the largest EM company by free float capitalization. Most of its revenue is to other EM. Most of its products end up in 1st world products like smart phones and TV sets. What is going on here? Well, it sells lots of components to contract manufacturers who assemble the finial good. IIRC every iPhone that is sold generates 6 times it revenue as its components get shipped back and forth between subcontractor. So we get inflated numbers. I don't think there is a good way to go from the gross revenue numbers to the more important valued added numbers.

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure in Various Stock Portfolios

Post by SimpleGift » Fri Mar 09, 2018 9:53 pm

Angst wrote:
Fri Mar 09, 2018 9:28 pm
I also remember asking you about showing the numbers for a purely international portfolio, simply for more complete perspective. You didn't have the numbers at the time and I don't think it was ever posted.
The chart below is the best revenue exposure information I could find for the MSCI ACWI Ex-US index. Sorry not to be able to provide the actual numbers and have you eye-ball off the chart, but this is the most current data available, as best I know.
I'm not sure exactly what calculations you are making from the data in the OP, but you'll recall the conversation below from the discussion in the 2014 thread, when folks were working to verify the numbers:
Chan_va wrote:
Mon Nov 10, 2014 3:28 pm
backpacker wrote:Something weird is going on. Suppose international has no US revenue. The 50/50 portfolio would then have 60(.5)+0(.5)=30% US revenue. The 50/50 chart says that it has 28%. But international companies do have US revenue exposure, so the number has to be higher than 30%.
I could be wrong, but I think the issue is that the cap weighting is not revenue weighting. Given that you have US stocks typically priced higher for the equivalent earnings compared to international, you could have

Company A (US): Market cap 100, Revenue: $6 US, $4 International
Company B (Intnl): Market cap 100, Revenue: $1 US, $14 International

If you held 1 share each of A and B, You would be 50:50 in terms of cap weighting, but your revenue % of US would be (6+1)/(6+1+4+14) = 28%
If you held only Company A, you would be 100% US by cap, but 60% by revenue.
The insight from Chan_va was that that international stocks have more revenue per percent of market cap than U.S. stocks.
Last edited by SimpleGift on Fri Mar 09, 2018 10:10 pm, edited 2 times in total.
Cordially, Todd

User avatar
triceratop
Moderator
Posts: 5724
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Global Revenue Exposure in Various Stock Portfolios

Post by triceratop » Fri Mar 09, 2018 9:59 pm

This is a nitpick, but could you tell me your source for the global market cap being 50/50 US/ex-US? Vanguard considers its Total World Stock Index Fund to be 52.4% US (as of 1/31). Are you using MSCI weights instead, or just a first-order approximation?

I point this out because the weights obviously do shift and some Bogleheads explicitly target 50/50 US/ex-US so I want to be clear that the two are not the same.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure in Various Stock Portfolios

Post by SimpleGift » Fri Mar 09, 2018 10:06 pm

triceratop wrote:
Fri Mar 09, 2018 9:59 pm
This is a nitpick, but could you tell me your source for the global market cap being 50/50 US/ex-US? Vanguard considers its Total World Stock Index Fund to be 52.4% US (as of 1/31). Are you using MSCI weights instead, or just a first-order approximation?
No, the 50% U.S./50% international portfolio is used as just a general approximation for the world market-cap portfolio. You're correct the actual number today is closer to 52%, and that it moves around over time.

Please don't take any of the portfolio revenue exposure percentages in the OP as representing a high degree of accuracy — they are just general estimates, which also change with time (but not as quickly as the market cap percentages). I should have made this more clear in the OP.
Last edited by SimpleGift on Fri Mar 09, 2018 10:08 pm, edited 1 time in total.
Cordially, Todd

User avatar
Sandtrap
Posts: 5369
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Global Revenue Exposure in Various Stock Portfolios

Post by Sandtrap » Fri Mar 09, 2018 10:07 pm

Thanks, "Todd"
Appreciate the hard work you put into this.
It seems to support the somewhat similar allocations to international (that you prefer) in many of the Vanguard "fund of funds".
Thus, there are others thinking along the same lines at Vanguard.
Which lends even more credibility to your numbers.
True?
&
Does this differentiate between US sales Internationally. . and International sales in the US?

Thanks for sharing. :D
j

Angst
Posts: 1850
Joined: Sat Jun 09, 2007 11:31 am

Re: Global Revenue Exposure in Various Stock Portfolios

Post by Angst » Fri Mar 09, 2018 10:23 pm

SimpleGift wrote:
Fri Mar 09, 2018 9:53 pm
The insight from Chan_va was that that international stocks have more revenue per percent of market cap than U.S. stocks.
Hmm, I do remember that now. So if I split a hypothetical 2 M dollar portfolio into two, and half goes to the US, 70% of my 1 M US portfolio's sales come from the US, but even though that would seem to say at least 35% of my sales from my entire 50/50 US/Intl portfolio ought to come from the US, but b/c my 1 M Intl portfolio generates so much more sales than my US portfolio generates, it's sales somewhat overwhelm the US stock contribution. So US sales' contribution to Intl stock ought to be pretty low. I can eyeball your graph (thank you for posting!) at roughly 20% for "North America". The US ought to be even less than that b/c of Canada, so I guess that could explain it. But wow... International stocks must generate much more sales than US stocks in order to depreciate that 35% so much. Well, we've been told they're undervalued vs. US equity, haven't we... Thanks Todd for your quick recall of the history of these threads.
Last edited by Angst on Fri Mar 09, 2018 10:26 pm, edited 1 time in total.

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure in Various Stock Portfolios

Post by SimpleGift » Fri Mar 09, 2018 10:25 pm

Sandtrap wrote:
Fri Mar 09, 2018 10:07 pm
Does this differentiate between US sales Internationally. . and International sales in the US?
Yes, the percentages of revenue exposure in the OP are all "net-net." For example, the foreign sales by by U.S. companies to Europe-U.K. are balanced by the sales of Europe-U.K. to the U.S. — so each portfolio allocation shows the global revenue mix.
Cordially, Todd

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure in Various Stock Portfolios

Post by SimpleGift » Fri Mar 09, 2018 10:31 pm

Angst wrote:
Fri Mar 09, 2018 10:23 pm
But wow... International stocks must generate much more sales than US stocks in order to depreciate that 35% so much.
The more likely case is that U.S. stocks today are just much more highly-valued than international stocks per dollar of sales.
Last edited by SimpleGift on Fri Mar 09, 2018 10:31 pm, edited 1 time in total.
Cordially, Todd

fennewaldaj
Posts: 308
Joined: Sun Oct 22, 2017 11:30 pm

Re: Global Revenue Exposure in Various Stock Portfolios

Post by fennewaldaj » Fri Mar 09, 2018 10:31 pm

I assume this data is for large caps? Does data exist for mid and small caps? I am in the 60/40 range US/exUS but I am significantly overweight in small caps both in US and international

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure in Various Stock Portfolios

Post by SimpleGift » Fri Mar 09, 2018 10:59 pm

fennewaldaj wrote:
Fri Mar 09, 2018 10:31 pm
I assume this data is for large caps? Does data exist for mid and small caps? I am in the 60/40 range US/exUS but I am significantly overweight in small caps both in US and international.
Yes, the data in the OP is for cap-weighted indexes — both U.S. and international — so the large-caps will dominate. Shown below are the revenue exposure numbers for small-cap vs. large/mid-cap stocks in the MSCI regional indexes.
  • Image
    Source: MSCI, as of 6/30/17.
Understandably, small-caps in each region generate a smaller percentage of revenues from foreign sales than large-caps. You may be able to adjust the revenue exposure numbers in the OP for the small cap tilt in your own portfolio. Hope this helps
Cordially, Todd

peppers
Posts: 1344
Joined: Tue Oct 25, 2011 7:05 pm

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by peppers » Sat Mar 10, 2018 7:10 am

Appreciate the effort Todd
"..the cavalry ain't comin' kid, you're on your own..."

timmy
Posts: 725
Joined: Thu Jun 14, 2012 2:57 pm

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by timmy » Sat Mar 10, 2018 8:41 am

Thanks for sharing.

2 or 3 (overlapping) things that drive stock market returns:

Profits

Future profits (expectations of the future)

Valuations

How do these tie into the above? For example (making up numbers):

Coke sells $1B on Coke in China, profits $100M

Poke (copycat of Coke but based in China) sells $1B on Coke like sugar water in China, profits $100M

If their revenue and profits grow at the same rate (next ~20 years), would there be a material difference in stock returns between Coke and Poke?

I hope my question makes sense. In short, is accessing revenue in a country the same thing as owning equity in that country?

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by SimpleGift » Sat Mar 10, 2018 10:17 am

timmy wrote:
Sat Mar 10, 2018 8:41 am
In short, is accessing revenue in a country the same thing as owning equity in that country?
My sense is that, fifty years ago, before globalization and the rise of multinational corporations with their worldwide sales and supply lines, companies' country-of-domicile and their revenue exposure were much the same thing. For instance, companies in Europe mostly sold their goods and services to consumers in Europe, and the same for the U.S. and the Asian regions.

But with the rise of globalization, companies' country-of-domicile has become much less important for assessing risk in an equity portfolio. Without understanding revenue exposure, investors may be unaware of the extent to which political or economic trouble in other parts of the world might impact their equity holdings — or provide greater growth opportunities, such as with increased emerging markets revenue exposure.

In short, focusing on the country where a company is headquartered is becoming much less meaningful and, in fact, may mask portfolio risks and opportunities in the increasingly globalized world of today. Just my perspective.
Cordially, Todd

msk
Posts: 921
Joined: Mon Aug 15, 2016 10:40 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by msk » Sat Mar 10, 2018 10:40 am

I would love to be invested globally according to the chart on the right, but that shows 35% for Emerging Markets. Unfortunately Emerging Markets are not as securitised as those in advanced economies and free-float capitalisation-weighted means that I invest just around 10% in EM, nowhere near 35% :annoyed .

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by SimpleGift » Sat Mar 10, 2018 7:09 pm

One interesting aspect of the global revenue story is how dramatically its geographic makeup has changed in just under 20 years (chart below). If one was invested in the global cap-weighted stock index in 2002, over 50% of the index companies' revenues were from North America (U.S. and Canada), and only 11% from emerging markets.
Today, just 30% of revenues in the global market-cap portfolio come from North America, and 35% are from emerging markets. This is a remarkable shift in under 20 years — and I expect the trend will continue (perhaps more slowly) in the years to come.
Cordially, Todd

fennewaldaj
Posts: 308
Joined: Sun Oct 22, 2017 11:30 pm

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by fennewaldaj » Sun Mar 11, 2018 12:28 am

Its interesting that Pacific and Europe revenue exposure stayed relatively constant while North America decreased greatly in terms of revenue exposure. I wonder why that is. The increased EM revenue exposure makes total sense.

Valuethinker
Posts: 36355
Joined: Fri May 11, 2007 11:07 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by Valuethinker » Sun Mar 11, 2018 6:51 am

fennewaldaj wrote:
Sun Mar 11, 2018 12:28 am
Its interesting that Pacific and Europe revenue exposure stayed relatively constant while North America decreased greatly in terms of revenue exposure. I wonder why that is. The increased EM revenue exposure makes total sense.
American companies diversifying outside North America?

Also the European economies, and those of the mature SE Asian economies (Japan, Australia, South Korea etc.) are relatively slow growing (compared to Emerging China, India, Vietnam etc.). So your revenue in those markets is only going to keep up with global GDP growth (if that).

VinhoVerde
Posts: 90
Joined: Fri Nov 21, 2014 8:39 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by VinhoVerde » Sun Mar 11, 2018 7:59 am

This is great stuff! Is it possible to determine if investing styles, Value and Growth, make a difference in the amount of international exposure? With this new information you have graciously provided I find my self ridiculously over exposed to foreign revenue with my current 50/50 Vanguard Total Stock/Vanguard FTSE ex US equity asset composition. How would Vanguard Mid Cap Value lessen my international exposure?
Thanks very much for your work.
VinhoVerde

Dottie57
Posts: 4655
Joined: Thu May 19, 2016 5:43 pm

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by Dottie57 » Sun Mar 11, 2018 10:09 am

Thanks to OP for sharing this information. Helps to understand that with 30% international , I have a larger than expected exposure to international.

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by SimpleGift » Sun Mar 11, 2018 10:11 am

VinhoVerde wrote:
Sun Mar 11, 2018 7:59 am
This is great stuff! Is it possible to determine if investing styles, Value and Growth, make a difference in the amount of international exposure?
The chart below shows the latest global revenue exposure for the various U.S. size and style indexes. To be expected, there is some increase in domestic U.S. revenue as one goes down the size scale from large-cap to small-cap.
  • Image
    Note: Companies with unknown geographic foreign sales assigned to the "Other" category.
    Source: S&P-Dow Jones, as of 12/29/17.
By far, the greatest difference between the growth and value styles is found in the large-cap stocks.
Cordially, Todd

VinhoVerde
Posts: 90
Joined: Fri Nov 21, 2014 8:39 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by VinhoVerde » Sun Mar 11, 2018 10:56 am

Simplegift:
Thanks for the additional information. Upon reflection, I find that my 50/50 blend of Vanguard Total Stock and Vanguard FTSE ex US does more accurately reflect the US share or world GDP (28%) instead of stock market cap. I'm curious which benchmark one should use to base their asset allocation.
VinhoVerde

Angst
Posts: 1850
Joined: Sat Jun 09, 2007 11:31 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by Angst » Sun Mar 11, 2018 11:00 am

Valuethinker wrote:
Sun Mar 11, 2018 6:51 am
fennewaldaj wrote:
Sun Mar 11, 2018 12:28 am
Its interesting that Pacific and Europe revenue exposure stayed relatively constant while North America decreased greatly in terms of revenue exposure. I wonder why that is. The increased EM revenue exposure makes total sense.
American companies diversifying outside North America?

Also the European economies, and those of the mature SE Asian economies (Japan, Australia, South Korea etc.) are relatively slow growing (compared to Emerging China, India, Vietnam etc.). So your revenue in those markets is only going to keep up with global GDP growth (if that).
I suspect this is more correlated to differences (and changes) in the equity PE of the US vs. Intl markets than anything else. Note Simplegift's reply above to my post regarding the US only portfolio's "70% US Revenue" figure vs. the 50/50 portfolio's "28% US Revenue" figure. With our relatively high PE's in US equity, vs. Intl equity, the absolute value of revenues contributed by high PE US equity to a blended US/Intl equity portfolio is going to be diluted.

Angst
Posts: 1850
Joined: Sat Jun 09, 2007 11:31 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by Angst » Sun Mar 11, 2018 11:35 am

SimpleGift wrote:
Sat Mar 10, 2018 7:09 pm
Todd,
is there any chance that this same graph is available with the Y-axis changed from % to $? Or adding it to the right side as a second Y-axis data measure. Yes, you can see that I'm somewhat obsessed with the idea of stripping the effect of PE from this data. (Of course you'd have to weight equity markets by revenue rather than capitalization to fully accomplish that. :shock: )

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by SimpleGift » Sun Mar 11, 2018 11:56 am

VinhoVerde wrote:
Sun Mar 11, 2018 10:56 am
Thanks for the additional information. Upon reflection, I find that my 50/50 blend of Vanguard Total Stock and Vanguard FTSE ex US does more accurately reflect the US share or world GDP (28%) instead of stock market cap. I'm curious which benchmark one should use to base their asset allocation.
This seems like a question that only each individual investor can answer, based on their own portfolio preferences. Since the cap-weighted U.S. and international indexes are based on companies' country-of-domicile, one has to start to with these benchmarks first — then perhaps adjust their U.S./international mix based on the revenue exposure data. At least that's what I've done.
Angst wrote:
Sun Mar 11, 2018 11:35 am
Todd,is there any chance that this same graph is available with the Y-axis changed from % to $? Or adding it to the right side as a second Y-axis data measure. Yes, you can see that I'm somewhat obsessed with the idea of stripping the effect of PE from this data.
I don't see any PE effect on the chart of historical revenue distribution. It's simply a breakdown of the total global index revenues, by percentage from each world region. As I read it, all the companies in the MSCI All-World Index are just selling more goods and services to emerging markets than they were 20 years ago and less to North America, as a proportion of total global revenues.
Last edited by SimpleGift on Sun Mar 11, 2018 11:57 am, edited 2 times in total.
Cordially, Todd

Valuethinker
Posts: 36355
Joined: Fri May 11, 2007 11:07 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by Valuethinker » Sun Mar 11, 2018 11:56 am

Angst wrote:
Sun Mar 11, 2018 11:00 am
Valuethinker wrote:
Sun Mar 11, 2018 6:51 am
fennewaldaj wrote:
Sun Mar 11, 2018 12:28 am
Its interesting that Pacific and Europe revenue exposure stayed relatively constant while North America decreased greatly in terms of revenue exposure. I wonder why that is. The increased EM revenue exposure makes total sense.
American companies diversifying outside North America?

Also the European economies, and those of the mature SE Asian economies (Japan, Australia, South Korea etc.) are relatively slow growing (compared to Emerging China, India, Vietnam etc.). So your revenue in those markets is only going to keep up with global GDP growth (if that).
I suspect this is more correlated to differences (and changes) in the equity PE of the US vs. Intl markets than anything else. Note Simplegift's reply above to my post regarding the US only portfolio's "70% US Revenue" figure vs. the 50/50 portfolio's "28% US Revenue" figure. With our relatively high PE's in US equity, vs. Intl equity, the absolute value of revenues contributed by high PE US equity to a blended US/Intl equity portfolio is going to be diluted.
Unless they are doing something strange, revenue share is independent of market capitalization?

Mkt cap = shares in issue x share price

(P/E) x EPS = share price Thus a higher PE increases the market cap, all things being equal

However revenue is just sales. That's independent of the market value of the business?

How would a higher relative market cap for US stocks, due to a higher PE, increase the influence of those companies on the revenue percentage?

Angst
Posts: 1850
Joined: Sat Jun 09, 2007 11:31 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by Angst » Sun Mar 11, 2018 12:34 pm

SimpleGift wrote:
Sun Mar 11, 2018 11:56 am
Angst wrote:
Sun Mar 11, 2018 11:35 am
Todd,is there any chance that this same graph is available with the Y-axis changed from % to $? Or adding it to the right side as a second Y-axis data measure. Yes, you can see that I'm somewhat obsessed with the idea of stripping the effect of PE from this data.
I don't see any PE effect on the chart of historical revenue distribution. It's simply a breakdown of the total global index revenues, by percentage from each world region. As I read it, all the companies in the MSCI All-World Index are just selling more goods and services to emerging markets than they were 20 years ago and less to North America, as a proportion of total global revenues.
Holding everything else constant, including absolute $ revenue, but raising the US PE and lowering Intl PE, the %'s of revenue attributed to different parts of the world will change, even though absolute $ revenue generated from each region worldwide remains unchanged. So while it might appear in graphs over time that there is a change or shift in where absolute revenues are being generated, nothing of the sort is true in this controlled example. The change is entirely due to holding more US equity and less Intl over time b/c of the change in PE. This is my takeaway from the discussion addressing this in the older thread. Maybe I'm missing something though.

I have to get offline now but will come back when I can. Thank you.

User avatar
SimpleGift
Posts: 3121
Joined: Tue Feb 08, 2011 3:45 pm
Location: Central Oregon

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by SimpleGift » Sun Mar 11, 2018 1:21 pm

Angst wrote:
Sun Mar 11, 2018 12:34 pm
Holding everything else constant, including absolute $ revenue, but raising the US PE and lowering Intl PE, the %'s of revenue attributed to different parts of the world will change, even though absolute $ revenue generated from each region worldwide remains unchanged. So while it might appear in graphs over time that there is a change or shift in where absolute revenues are being generated, nothing of the sort is true in this controlled example. The change is entirely due to holding more US equity and less Intl over time b/c of the change in PE.
Angst, the only thing that would change the amount of U.S. vs. international stock in the MSCI World Index over time is a change in their relative cap-weights, since it's a cap-weighted index. And we know that the U.S. share of the global market-cap has remained about 50%, plus or minus a few percentage points, since 2002 (abbreviated chart below).
Can't see how changes in the constituent index companies' PE over time would have anything to do with the regional distribution of revenues, as a percent of total global revenues, for the cap-weighted MSCI World Index in the 2002-2018 period.
Last edited by SimpleGift on Sun Mar 11, 2018 1:28 pm, edited 1 time in total.
Cordially, Todd

User avatar
topper1296
Posts: 583
Joined: Fri Apr 03, 2009 10:50 pm
Location: Nashville TN

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by topper1296 » Sun Mar 11, 2018 1:27 pm

Interesting thread. Thanks for updating the info.

Angst
Posts: 1850
Joined: Sat Jun 09, 2007 11:31 am

Re: Global Revenue Exposure of Your Stock Portfolio?

Post by Angst » Mon Mar 12, 2018 10:28 am

Angst wrote:
Sun Mar 11, 2018 12:34 pm
SimpleGift wrote:
Sun Mar 11, 2018 11:56 am
Angst wrote:
Sun Mar 11, 2018 11:35 am
Todd,is there any chance that this same graph is available with the Y-axis changed from % to $? Or adding it to the right side as a second Y-axis data measure. Yes, you can see that I'm somewhat obsessed with the idea of stripping the effect of PE from this data.
I don't see any PE effect on the chart of historical revenue distribution. It's simply a breakdown of the total global index revenues, by percentage from each world region. As I read it, all the companies in the MSCI All-World Index are just selling more goods and services to emerging markets than they were 20 years ago and less to North America, as a proportion of total global revenues.
Holding everything else constant, including absolute $ revenue, but raising the US PE and lowering Intl PE, the %'s of revenue attributed to different parts of the world will change, even though absolute $ revenue generated from each region worldwide remains unchanged. So while it might appear in graphs over time that there is a change or shift in where absolute revenues are being generated, nothing of the sort is true in this controlled example. The change is entirely due to holding more US equity and less Intl over time b/c of the change in PE. This is my takeaway from the discussion addressing this in the older thread. Maybe I'm missing something though.
SimpleGift wrote:
Sun Mar 11, 2018 1:21 pm
Angst, the only thing that would change the amount of U.S. vs. international stock in the MSCI World Index over time is a change in their relative cap-weights, since it's a cap-weighted index. And we know that the U.S. share of the global market-cap has remained about 50%, plus or minus a few percentage points, since 2002 (abbreviated chart below).
Can't see how changes in the constituent index companies' PE over time would have anything to do with the regional distribution of revenues, as a percent of total global revenues, for the cap-weighted MSCI World Index in the 2002-2018 period.
Because a constituent region can have PE changes affecting its revenue % contributions to the world as a whole w/o a change in absolute revenue dollars. A couple years ago, your pie graphs showed the US portfolio having 60% of revenue coming from the US while the Global portfolio was 28% from the US. But today, the US portfolio has 70% of its revenue coming from the US while the Global portfolio still has just 28%. It seems to me that you interpret this to mean that over a couple years International (ex US) equity is getting less of its revenue from the US, but I'm suggesting that some or perhaps most of this is an artifact of the rising stock market in the US. That's why I think absolute revenue dollars would add a lot of insight and useful perspective to your MSCI All-World Revenue Distribution chart above; I suspect it would temper people's response to %'s alone, but I don't know what it would show. I'd sure like to know. The whole lesson I got from last year's thread was that although the US was 50% of world equity, it's effect on the Global revenue %'s was a lot less than 1/2, i.e. less than 50%, d/t elevated valuations in the US, i.e. diluting the impact of revenue numbers from US equity. I can't say much more than this. It makes sense to me though and it leads me to be suspicious of the importance of these revenue %'s alone, but I'm not equipped to support my concerns very effectively; I'm out of my league. Maybe I should just call it a day! (Seriously) I do appreciate your patience though and all your comments. Thanks again Todd. Thank you VT too.

Angie

Post Reply