International Exposure — A Fresh Look at Your Stock Portfolio

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SimpleGift
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International Exposure — A Fresh Look at Your Stock Portfolio

Post by SimpleGift » Mon May 06, 2019 5:44 pm

How much international exposure does your stock portfolio really have?

Morningstar has recently published new research on the revenue exposure of the major global stock indexes, calculating where companies' actual revenues come from around the world, rather than just their country-of-domicile. As examples, Microsoft is domiciled in the U.S., but makes 50% of its sales overseas, including 25% in emerging markets. Nestle is headquartered in Switzerland, but receives 35% of its revenues from the United States. Morningstar has now consolidated all this global data.

Shown in the charts and table below are rough estimates of the revenue exposure of various market-cap mixes of U.S. and international stock indexes typically found in a passive investor's portfolio. At left is the revenue exposure of an all-world market-cap stock investor, at right is the revenue exposure of an all-U.S. market-cap stock investor, with gradations in between.

  • Image

    Image
    Note: All-world is MSCI All Country World Index; all-U.S. is Vanguard Total Stock Market Fund; as of 9/30/18.

A few observations:
  • 1. From the perspective of company revenue, an all-world stock investor has only about a 42% exposure to the U.S. economy — far less than the 55% percent suggested by the current U.S. market cap.

    2. An investor with a 75% U.S./25% international allocation has about a 50% revenue exposure to the U.S. economy.

    3. All equity investors today have international exposure, even U.S.-only investors, due to global sales revenue.

Any thoughts on all this?

MotoTrojan
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by MotoTrojan » Mon May 06, 2019 5:48 pm

Big difference in international revenue exposure and overall market exposure. Look at the top 10 companies in the US vs. Ex-US, do they look similar? Would you expect Nestle to be highly correlated to Microsoft?

Having said that I am closer to 25% International and that clean 50/50 split just feels right :sharebeer .

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Thesaints » Mon May 06, 2019 5:53 pm

SimpleGift wrote:
Mon May 06, 2019 5:44 pm
Any thoughts on all this?
If stocks valuations depended strongly on revenue and its origin, Morningstar would have a valid point.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by DonIce » Mon May 06, 2019 6:05 pm

You diversify across companies, not national origin of revenues. You could make the exact same charts for foreign companies (including no US headquartered companies at all) and still get ~25% exposure to the US as a revenue source.

Lets say the stocks of some foreign country, for example Canada, had 50% of their revenues from the US and 50% from the rest of the world. Would you go 100% Canadian stocks and consider yourself adequately diversified across the world because of this?

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by welsie » Mon May 06, 2019 6:12 pm

Other have already said this, but 55% market cap is not some magic number. This is an apples to oranges comparison. If globally the U.S. is responsible for 42% of revenues, then if you want to hold a basket of stocks that adequate track the global market, then you do want the US of 42% of revenues, which is apparently accomplished by holding 55% of market cap.

I drive a Honda car, my cell phone is a Samsung, my TV is a Samsung, my fridge is an LG, the Gerber baby food I buy is from Nestle, half the cheap stuff I buy on Amazon are chinese goods resold from Alibaba, etc.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by thx1138 » Mon May 06, 2019 6:16 pm

First, revenue is a bit of an arbitrary metric for diversification. It is the easiest to measure probably which is likely why they chose it but not clear what the motivation is for it. Wouldn’t profit/loss diversification be more relevant?

Important to note from the article:
geographical diversification of revenue can vary significantly across a fund’s sectors, which in turn aggregates to the overall fund. For example, technology is the most multinational sector, while utilities, real estate, and financial services are the most domestically focused.
So a US only fund investor is mostly getting international exposure only in certain sectors like technology with low to no diversification in things that are actually more geographically idiosyncratic. So this “international revenue” diversification appears to be a weak form of diversification.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by SimpleGift » Mon May 06, 2019 6:18 pm

MotoTrojan wrote:
Mon May 06, 2019 5:48 pm
Having said that I am closer to 25% International and that clean 50/50 split just feels right.
Yes, we are currently about 30% international stock by market cap — and one of the reasons we haven't gone to an all-world market-cap allocation is its approximately 40% revenue exposure to the U.S. economy. This is too little for our tastes, as we'd prefer an equity allocation more exposed to the U.S. consumer markets. Just a personal choice.
Last edited by SimpleGift on Mon May 06, 2019 6:18 pm, edited 1 time in total.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by columbia » Mon May 06, 2019 6:18 pm

welsie wrote:
Mon May 06, 2019 6:12 pm
Other have already said this, but 55% market cap is not some magic number. This is an apples to oranges comparison. If globally the U.S. is responsible for 42% of revenues, then if you want to hold a basket of stocks that adequate track the global market, then you do want the US of 42% of revenues, which is apparently accomplished by holding 55% of market cap.

I drive a Honda car, my cell phone is a Samsung, my TV is a Samsung, my fridge is an LG, the Gerber baby food I buy is from Nestle, half the cheap stuff I buy on Amazon are chinese goods resold from Alibaba, etc.

How has that worked out for your returns?

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by CULater » Mon May 06, 2019 6:19 pm

According to an analysis done regularly by S&P Global, 43.6 percent of sales by the S&P 500 companies were in foreign countries. Coca Cola, a canonical American company, has 58.4 percent of its sales outside of the U.S. The comparable figure for Wal-Mart is 24.1 percent, 40.1 percent for Ford and 58.1 percent for Procter & Gamble.

This works the other way, too. The United States is a major source of revenue for Honda and Toyota, quintessential Japanese companies. At the far extreme, only 3 percent of Nestlé’s revenue comes from its home country, Switzerland. You can’t identify the revenue sources of a company by its home address.
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Vulcan » Mon May 06, 2019 6:21 pm

columbia wrote:
Mon May 06, 2019 6:18 pm
welsie wrote:
Mon May 06, 2019 6:12 pm
Other have already said this, but 55% market cap is not some magic number. This is an apples to oranges comparison. If globally the U.S. is responsible for 42% of revenues, then if you want to hold a basket of stocks that adequate track the global market, then you do want the US of 42% of revenues, which is apparently accomplished by holding 55% of market cap.

I drive a Honda car, my cell phone is a Samsung, my TV is a Samsung, my fridge is an LG, the Gerber baby food I buy is from Nestle, half the cheap stuff I buy on Amazon are chinese goods resold from Alibaba, etc.
How has that worked out for your returns?
Don't confuse strategy and outcome
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by SimpleGift » Mon May 06, 2019 6:28 pm

Just to mention that the Morningstar research article referenced in the OP also has a link at the bottom to a white paper they've written about global revenue exposure and their methodology.

To receive this white paper, one needs to give up their email address to Morningstar — which may or may not discourage those more interested in this subject.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by pokebowl » Mon May 06, 2019 6:32 pm

SimpleGift wrote:
Mon May 06, 2019 5:44 pm

Any thoughts on all this?
Since the source data is from March, can I link another source from around the same time frame that addresses this?

Vanguard: Global equity investing white paper February 2019

page 3 Can multinational corporations provide enough exposure?

One common question about exposure to stocks outside one’s home market is whether domestic multinational companies have enough coverage of foreign markets embedded in their prices. The thinking goes that, because many large domestic firms generate a significant portion of their revenue from foreign operations, the diversification benefits of global investing are already reflected in their prices and performance.

While this aspect of globalization cannot be ignored (and certainly can have an impact on investors’ portfolios), we believe it still makes sense for investors to hold international equities, for several reasons.

First, simply focusing on domestic companies means an investor has no stake in leading global companies that are domiciled outside their home market.

Second, many firms seek to hedge away currency fluctuations of their foreign operations. Although this can help smooth revenue streams, foreign exchange can be a diversifier for an investor’s portfolio.

Finally, a portfolio made up solely of domestic firms is likely to have less-diversified sector exposures than the global equity market portfolio.
Nullius in verba.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by welsie » Mon May 06, 2019 6:38 pm

columbia wrote:
Mon May 06, 2019 6:18 pm
welsie wrote:
Mon May 06, 2019 6:12 pm
Other have already said this, but 55% market cap is not some magic number. This is an apples to oranges comparison. If globally the U.S. is responsible for 42% of revenues, then if you want to hold a basket of stocks that adequate track the global market, then you do want the US of 42% of revenues, which is apparently accomplished by holding 55% of market cap.

I drive a Honda car, my cell phone is a Samsung, my TV is a Samsung, my fridge is an LG, the Gerber baby food I buy is from Nestle, half the cheap stuff I buy on Amazon are chinese goods resold from Alibaba, etc.

How has that worked out for your returns?
That is not a particularly relevant question, I am in my early 30s. Talk to me in the year 2050 and we will compare notes.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by MotoTrojan » Mon May 06, 2019 6:48 pm

columbia wrote:
Mon May 06, 2019 6:18 pm
welsie wrote:
Mon May 06, 2019 6:12 pm
Other have already said this, but 55% market cap is not some magic number. This is an apples to oranges comparison. If globally the U.S. is responsible for 42% of revenues, then if you want to hold a basket of stocks that adequate track the global market, then you do want the US of 42% of revenues, which is apparently accomplished by holding 55% of market cap.

I drive a Honda car, my cell phone is a Samsung, my TV is a Samsung, my fridge is an LG, the Gerber baby food I buy is from Nestle, half the cheap stuff I buy on Amazon are chinese goods resold from Alibaba, etc.

How has that worked out for your returns?
I am going to go out on a limb and assume you haven't been holding MNST (Monster Beverage Corp) for the last couple of decades. How has that been for your returns?

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by lostdog » Mon May 06, 2019 7:02 pm

Another confirmation bias thread for US only investors?

We'll see some virtual high fives soon.

Apples to oranges. 🍎 🍊
VTWAX and chill.

columbia
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by columbia » Mon May 06, 2019 7:25 pm

The only thing that matters is returns, not your ideology.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by tibbitts » Mon May 06, 2019 7:29 pm

columbia wrote:
Mon May 06, 2019 7:25 pm
The only thing that matters is returns, not your ideology.
The only thing that matters is your returns going forward. Well maybe risk-adjusted returns. But it's the "going forward" part that's the problem.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Ferdinand2014 » Mon May 06, 2019 7:31 pm

I don’t see this as an international vs U.S. post at all. You could also apply this by sector for example. I find it interesting from a revenue source vs market cap weighting source concept. Is there any data that relates to the benefit of one weighting system vs another? There are many threads on this forum that discuss equal weight, tilting to small cap, etc. Could there be a benefit to weighting based on global revenue vs market cap? Isn’t one of the arguments for international domicile inclusion that the global footprint of a U.S. corporation isn’t enough diversification because it still tends to track the U.S. market and economic conditions because of its domicile and market exchange listing as an example? Is it possible that a measure of revenue is a better indicator of the global economy?

Executive summary from white paper:

“Morningstar’s new Revenue Exposure by Region tool can lead to improved outcomes for investors by providing detailed insight into the global makeup of equity indexes and portfolios. Unlike traditional domicile-based classification, multinational companies no longer need to be assigned to a single country. Instead, the geographical diversity of their revenue streams receives as full a representation as their public disclosures allow. The aggregated portfolio-level exposure, in turn, gives investors a much better sense of where their holdings make sales and can reveal risks as well as opportunities that would otherwise remain hidden through focusing on domicile alone.”

“Dramatic performance differences between revenue-weighted benchmarks and their market-cap- weighted counterparts at various points during the past five years highlights the importance of understanding portfolio-level revenue exposure”
Last edited by Ferdinand2014 on Mon May 06, 2019 7:56 pm, edited 2 times in total.
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by bgf » Mon May 06, 2019 7:40 pm

columbia wrote:
Mon May 06, 2019 6:18 pm
welsie wrote:
Mon May 06, 2019 6:12 pm
Other have already said this, but 55% market cap is not some magic number. This is an apples to oranges comparison. If globally the U.S. is responsible for 42% of revenues, then if you want to hold a basket of stocks that adequate track the global market, then you do want the US of 42% of revenues, which is apparently accomplished by holding 55% of market cap.

I drive a Honda car, my cell phone is a Samsung, my TV is a Samsung, my fridge is an LG, the Gerber baby food I buy is from Nestle, half the cheap stuff I buy on Amazon are chinese goods resold from Alibaba, etc.

How has that worked out for your returns?
if historical returns are your investment criteria you should be in monster beverage and amazon.

are you?
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by bgf » Mon May 06, 2019 7:41 pm

DonIce wrote:
Mon May 06, 2019 6:05 pm
You diversify across companies, not national origin of revenues. You could make the exact same charts for foreign companies (including no US headquartered companies at all) and still get ~25% exposure to the US as a revenue source.

Lets say the stocks of some foreign country, for example Canada, had 50% of their revenues from the US and 50% from the rest of the world. Would you go 100% Canadian stocks and consider yourself adequately diversified across the world because of this?
well said. :beer
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Ferdinand2014 » Mon May 06, 2019 7:49 pm

SimpleGift wrote:
Mon May 06, 2019 6:28 pm
Just to mention that the Morningstar research article referenced in the OP also has a link at the bottom to a white paper they've written about global revenue exposure and their methodology.

To receive this white paper, one needs to give up their email address to Morningstar — which may or may not discourage those more interested in this subject.
Thank you for providing this information.
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Dialectical Investor » Mon May 06, 2019 7:56 pm

If we're going to discuss a metric other than market capitalization, I'd be more interested in net income or cash flows than I would be in revenue.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by SimpleGift » Mon May 06, 2019 8:18 pm

Ferdinand2014 wrote:
Mon May 06, 2019 7:31 pm
Is it possible that a measure of revenue is a better indicator of the global economy?
Hard to say whether revenue exposure or market-cap is "better," but it does seem that revenue exposure more accurately represents the geographic sources of risk in one's portfolio. For example, an all-world stock investor has a 15% revenue exposure to Asian emerging markets (including China) — but these markets only account for 5% of total market cap.

With expanding global trade, it seems that country-of-domicile could become less and less relevant as an allocation tool.
Dialectical Investor wrote:
Mon May 06, 2019 7:56 pm
If we're going to discuss a metric other than market capitalization, I'd be more interested in net income or cash flows than I would be in revenue.
That might be preferable, but it comes down to data availability, I believe. Geographical-based financial data is hard to come by and requires poring over the annual filings of companies on major exchanges around the world. Just assembling a comprehensive database of company revenues, broken down by global region, is a major achievement by Morningstar in my view.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Dialectical Investor » Mon May 06, 2019 8:30 pm

SimpleGift wrote:
Mon May 06, 2019 8:18 pm
Dialectical Investor wrote:
Mon May 06, 2019 7:56 pm
If we're going to discuss a metric other than market capitalization, I'd be more interested in net income or cash flows than I would be in revenue.
That might be preferable, but it comes down to data availability, I believe. Geographical-based financial data is hard to come by and requires poring over the annual filings of companies on major exchanges around the world. Just assembling a comprehensive database of company revenues, broken down by global region, is a major achievement by Morningstar in my view.
Yes, using available data rather than the more relevant but unavailable data is a frequent scenario in studies like these. Sometimes the available data is so much less relevant that it is not really relevant at all. I'm not sure where revenue falls on the scale.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by SimpleGift » Mon May 06, 2019 8:53 pm

Dialectical Investor wrote:
Mon May 06, 2019 8:30 pm
Sometimes the available data is so much less relevant that it is not really relevant at all. I'm not sure where revenue falls on the scale.
You may have noticed that whenever there's a political or macroeconomic shock in some part of the world today, the first thing that the financial press shifts attention to is the affected companies' percentage of revenues in that region. My sense is the geographical risks are becoming more and more revenue-based, with hardly a mention of companies' domiciles anymore.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Dialectical Investor » Mon May 06, 2019 8:58 pm

SimpleGift wrote:
Mon May 06, 2019 8:53 pm
Dialectical Investor wrote:
Mon May 06, 2019 8:30 pm
Sometimes the available data is so much less relevant that it is not really relevant at all. I'm not sure where revenue falls on the scale.
You may have noticed that whenever there's a political or macroeconomic shock in some part of the world today, the first thing that the financial press shifts attention to is the affected companies' percentage of revenues in that region. My sense is the geographical risks are becoming more and more revenue-based, with hardly a mention of companies' domiciles anymore.
Well, it wouldn't be the first time the financial press was led astray. I don't mean to be dismissive of your post though. I guess I'll dig out my M* password from years ago and read the article before I comment any further. :happy

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Ferdinand2014 » Mon May 06, 2019 8:59 pm

SimpleGift wrote:
Mon May 06, 2019 5:44 pm
How much international exposure does your stock portfolio really have?

Morningstar has recently published new research on the revenue exposure of the major global stock indexes, calculating where companies' actual revenues come from around the world, rather than just their country-of-domicile. As examples, Microsoft is domiciled in the U.S., but makes 50% of its sales overseas, including 25% in emerging markets. Nestle is headquartered in Switzerland, but receives 35% of its revenues from the United States. Morningstar has now consolidated all this global data.

Shown in the charts and table below are rough estimates of the revenue exposure of various market-cap mixes of U.S. and international stock indexes typically found in a passive investor's portfolio. At left is the revenue exposure of an all-world market-cap stock investor, at right is the revenue exposure of an all-U.S. market-cap stock investor, with gradations in between.

  • Image

    Image
    Note: All-world is MSCI All Country World Index; all-U.S. is Vanguard Total Stock Market Fund; as of 9/30/18.

A few observations:
  • 1. From the perspective of company revenue, an all-world stock investor has only about a 42% exposure to the U.S. economy — far less than the 55% percent suggested by the current U.S. market cap.

    2. An investor with a 75% U.S./25% international allocation has about a 50% revenue exposure to the U.S. economy.

    3. All equity investors today have international exposure, even U.S.-only investors, due to global sales revenue.

Any thoughts on all this?
Also of small note, the 100% U.S. index was Vanguard Total U.S. Stock Market Fund. Reading the white paper, as expected, the S&P 500 with larger cap companies, had a slightly larger international revenue footprint by another 3% or so. The largest international revenue source, but U.S. based, style box was large, growth. The S&P 500 is large blend. The least is value, small. They also created example indexes that were revenue based and found interesting conclusions. Where did the pie charts come from? The link is to the white paper.
Last edited by Ferdinand2014 on Mon May 06, 2019 9:06 pm, edited 2 times in total.
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by jbranx » Mon May 06, 2019 9:03 pm

The conventional wisdom always has been that stocks are priced in their local markets based on earnings. I assume historical revenue-weighted returns over the last couple decades would show higher allocations to the US producing the highest returns, but given the corporate mandates to turn revenue growth into profit growth, one might argue revenue weighting gives some insight into future profits. One counterweight to that is that corporations feel compelled to be in markets like China even when that is not justified based on business returns. All said and done, the intellectual basis of passive investing says cap weighting and not RAFI type schemes of changing the game is what indexing is all about.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by KarenC » Mon May 06, 2019 9:09 pm

DonIce wrote:
Mon May 06, 2019 6:05 pm
You diversify across companies, not national origin of revenues. […]
+1
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Ferdinand2014 » Mon May 06, 2019 9:10 pm

Just noticed 80/20 gives you revenue exposure percent that coincidently equals market cap percent of U.S.

Maybe Taylor’s idea of 20% of equities in international is the best overall compromise.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Spinola » Mon May 06, 2019 10:34 pm

Ferdinand2014 wrote:
Mon May 06, 2019 9:10 pm
Just noticed 80/20 gives you revenue exposure percent that coincidently equals market cap percent of U.S.

Maybe Taylor’s idea of 20% of equities in international is the best overall compromise.
I agree. I'm at approx. 15% Intl now, working my way via contributions to 20%.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by TomCat96 » Mon May 06, 2019 11:29 pm

DonIce wrote:
Mon May 06, 2019 6:05 pm
You diversify across companies, not national origin of revenues. You could make the exact same charts for foreign companies (including no US headquartered companies at all) and still get ~25% exposure to the US as a revenue source.

Lets say the stocks of some foreign country, for example Canada, had 50% of their revenues from the US and 50% from the rest of the world. Would you go 100% Canadian stocks and consider yourself adequately diversified across the world because of this?
Counter argument.

Let's say the stocks of all foreign companies had 100% of their revenues completely derived from Rehoboth Beach Delaware. They just can't get enough of this quaint albeit posh beach town. Would you be diversified in being "international" in this case? Would the market be able to ensure that you were going to be ok?

I cannot cede you your point on principle, even if my counterargument posits a ridiculous scenario.

Revenues, like market capitalization could be another metric to test your diversification. There is no need to dogmatically emphasize market capitalization as the only metric needed to test diversification. It may well be argued that market capitalization is the best metric. But by no means does it have to be the only one.

In the scenario I posited, the international firms would all be priced according to their assets, liabilities, and equity, which might be quite high. But they would not be diversified, even if their charters come from different jurisdictions. The market does not correct for lack of diversification.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by bck63 » Mon May 06, 2019 11:46 pm

SimpleGift wrote:
Mon May 06, 2019 5:44 pm
How much international exposure does your stock portfolio really have?

Morningstar has recently published new research on the revenue exposure of the major global stock indexes, calculating where companies' actual revenues come from around the world, rather than just their country-of-domicile. As examples, Microsoft is domiciled in the U.S., but makes 50% of its sales overseas, including 25% in emerging markets. Nestle is headquartered in Switzerland, but receives 35% of its revenues from the United States. Morningstar has now consolidated all this global data.

Shown in the charts and table below are rough estimates of the revenue exposure of various market-cap mixes of U.S. and international stock indexes typically found in a passive investor's portfolio. At left is the revenue exposure of an all-world market-cap stock investor, at right is the revenue exposure of an all-U.S. market-cap stock investor, with gradations in between.

  • Image

    Image
    Note: All-world is MSCI All Country World Index; all-U.S. is Vanguard Total Stock Market Fund; as of 9/30/18.

A few observations:
  • 1. From the perspective of company revenue, an all-world stock investor has only about a 42% exposure to the U.S. economy — far less than the 55% percent suggested by the current U.S. market cap.

    2. An investor with a 75% U.S./25% international allocation has about a 50% revenue exposure to the U.S. economy.

    3. All equity investors today have international exposure, even U.S.-only investors, due to global sales revenue.

Any thoughts on all this?

I don’t have the exact number, but Japan’s international revenue in 1991 was close to the business US companies do abroad today. So the amount of business companies in a given country do abroad may not be a factor in determining how much to invest in international markets.

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Spinola » Mon May 06, 2019 11:53 pm

I found the second, "country quilt", to be eye-opening..
https://www.schwab.com/resource-center/ ... on-matters

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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by mrspock » Tue May 07, 2019 12:56 am

columbia wrote:
Mon May 06, 2019 7:25 pm
The only thing that matters is returns, not your ideology.
Don’t waste your time arguing international AA. Instead go read the latest 5 threads started today by 100% US AA Bogleheads convincing themselves they are doing the right thing....oh wait. The reality is, I don’t think 500 years of US out performance data would convince many to change their plan, their goal is to be as diversified as is possible, and the consequences are secondary (taxes, returns etc).

What does it for me is this: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Diversification reduces volatility right? Well a 30/30/40 (international/us/bonds) has the same return and 67% more volatility than a simple 35/65 US only portfolio. Tell me again how the diversification works? I take more risk for the same return? No thanks. It just makes no sense to me.

Thesaints
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Thesaints » Tue May 07, 2019 1:04 am

Only the future contains "risk"; the past is certain.
Yes, in the past this or that portfolio may have been more volatile, but that does not guarantee it was necessarily riskier.

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mrspock
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by mrspock » Tue May 07, 2019 1:14 am

Thesaints wrote:
Tue May 07, 2019 1:04 am
Only the future contains "risk"; the past is certain.
Yes, in the past this or that portfolio may have been more volatile, but that does not guarantee it was necessarily riskier.

Lets be academically clear and honest here: https://www.investopedia.com/ask/answer ... e-risk.asp. What I am saying is how these analyses are done: Std Dev is used to measure risk. So yes, it statistically means it is riskier on average. If folks have backtests going back further I would love to see it (I went back as far as I could).

Thesaints
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Thesaints » Tue May 07, 2019 1:23 am

A 10-sided dice is more "volatile" than a 6-sided one. Yet, by observing only a few rolls one may erroneously conclude that it is the other way around.

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mrspock
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by mrspock » Tue May 07, 2019 1:44 am

Thesaints wrote:
Tue May 07, 2019 1:23 am
A 10-sided dice is more "volatile" than a 6-sided one. Yet, by observing only a few rolls one may erroneously conclude that it is the other way around.
I rest my case :D .

Valuethinker
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Valuethinker » Tue May 07, 2019 3:31 am

mrspock wrote:
Tue May 07, 2019 12:56 am
columbia wrote:
Mon May 06, 2019 7:25 pm
The only thing that matters is returns, not your ideology.
Don’t waste your time arguing international AA. Instead go read the latest 5 threads started today by 100% US AA Bogleheads convincing themselves they are doing the right thing....oh wait. The reality is, I don’t think 500 years of US out performance data would convince many to change their plan, their goal is to be as diversified as is possible, and the consequences are secondary (taxes, returns etc).

What does it for me is this: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Diversification reduces volatility right? Well a 30/30/40 (international/us/bonds) has the same return and 67% more volatility than a simple 35/65 US only portfolio. Tell me again how the diversification works? I take more risk for the same return? No thanks. It just makes no sense to me.
Volatility would be higher with a portfolio with 25% more equities - that would be true if you compared 60/40 S&P500/ bonds v. 35/ 65 (the portfolio you have used here).

So I am not sure that diagram shows what you want it to show. Other than that on a like-for-like basis, 60% S&P 500 has outperformed the 30/30/40 portfolio.

If you made the comparison 60/40 S&P 500/ bonds v. 30/30/40 you would probably make your point better? The former portfolio would be less volatile (a bit) but have higher returns. Of course it is massively subject to which start and end dates you choose.

BTW I would not advocate an American investor going so far as 30/30 - equal weighting of international. 35/25 is closer to the actual weightings (ignoring EM).
Last edited by Valuethinker on Tue May 07, 2019 3:33 am, edited 1 time in total.

Valuethinker
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by Valuethinker » Tue May 07, 2019 3:32 am

Thesaints wrote:
Tue May 07, 2019 1:04 am
Only the future contains "risk"; the past is certain.
Yes, in the past this or that portfolio may have been more volatile, but that does not guarantee it was necessarily riskier.
Because one has added unhedged FX risk, one would expect the portfolio including foreign stocks to be more volatile, for a US investor.

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vineviz
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by vineviz » Tue May 07, 2019 8:10 am

Valuethinker wrote:
Tue May 07, 2019 3:32 am
Thesaints wrote:
Tue May 07, 2019 1:04 am
Only the future contains "risk"; the past is certain.
Yes, in the past this or that portfolio may have been more volatile, but that does not guarantee it was necessarily riskier.
Because one has added unhedged FX risk, one would expect the portfolio including foreign stocks to be more volatile, for a US investor.
That is not what "one should expect". Currency is less than perfectly correlated with the returns of both US stock indexes and hedged ex-US stock indexes.

The impact of adding international stocks on a portfolio's variance depends on the variances and the correlations of the components, and historically adding international stocks has reduced - not increased - portfolio volatility for a US investor.

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lostdog
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by lostdog » Tue May 07, 2019 8:28 am

mrspock wrote:
Tue May 07, 2019 12:56 am
columbia wrote:
Mon May 06, 2019 7:25 pm
The only thing that matters is returns, not your ideology.
Don’t waste your time arguing international AA. Instead go read the latest 5 threads started today by 100% US AA Bogleheads convincing themselves they are doing the right thing....oh wait. The reality is, I don’t think 500 years of US out performance data would convince many to change their plan, their goal is to be as diversified as is possible, and the consequences are secondary (taxes, returns etc).

What does it for me is this: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Diversification reduces volatility right? Well a 30/30/40 (international/us/bonds) has the same return and 67% more volatility than a simple 35/65 US only portfolio. Tell me again how the diversification works? I take more risk for the same return? No thanks. It just makes no sense to me.
I'll take advice from Vanguard over a few "armchair" experts on this board. Good luck investing in the rear view mirror.

Live long and prosper.
VTWAX and chill.

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TheTimeLord
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by TheTimeLord » Tue May 07, 2019 8:36 am

lostdog wrote:
Tue May 07, 2019 8:28 am
mrspock wrote:
Tue May 07, 2019 12:56 am
columbia wrote:
Mon May 06, 2019 7:25 pm
The only thing that matters is returns, not your ideology.
Don’t waste your time arguing international AA. Instead go read the latest 5 threads started today by 100% US AA Bogleheads convincing themselves they are doing the right thing....oh wait. The reality is, I don’t think 500 years of US out performance data would convince many to change their plan, their goal is to be as diversified as is possible, and the consequences are secondary (taxes, returns etc).

What does it for me is this: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Diversification reduces volatility right? Well a 30/30/40 (international/us/bonds) has the same return and 67% more volatility than a simple 35/65 US only portfolio. Tell me again how the diversification works? I take more risk for the same return? No thanks. It just makes no sense to me.
I'll take advice from Vanguard over a few "armchair" experts on this board. Good luck investing in the rear view mirror.

Live long and prosper.
I invest in U.S. index funds and ETFS. I trade International Index funds and ETFs. Frankly, I am suspicious of any investment company advice that is basically selling their book.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

typical.investor
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by typical.investor » Tue May 07, 2019 8:41 am

mrspock wrote:
Tue May 07, 2019 12:56 am
columbia wrote:
Mon May 06, 2019 7:25 pm
The only thing that matters is returns, not your ideology.
Don’t waste your time arguing international AA. Instead go read the latest 5 threads started today by 100% US AA Bogleheads convincing themselves they are doing the right thing....oh wait. The reality is, I don’t think 500 years of US out performance data would convince many to change their plan, their goal is to be as diversified as is possible, and the consequences are secondary (taxes, returns etc).

What does it for me is this: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Diversification reduces volatility right? Well a 30/30/40 (international/us/bonds) has the same return and 67% more volatility than a simple 35/65 US only portfolio. Tell me again how the diversification works? I take more risk for the same return? No thanks. It just makes no sense to me.
5% AAPL 95% Bonds does better than that with less volatility. (same time period as you quote)

So I guess the point here is to backtest until we find the best performing asset and then concentrate holdings in that. I mean 2008 having that allocation was genius.

I think you are right

lostdog
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by lostdog » Tue May 07, 2019 8:43 am

TheTimeLord wrote:
Tue May 07, 2019 8:36 am
lostdog wrote:
Tue May 07, 2019 8:28 am
mrspock wrote:
Tue May 07, 2019 12:56 am
columbia wrote:
Mon May 06, 2019 7:25 pm
The only thing that matters is returns, not your ideology.
Don’t waste your time arguing international AA. Instead go read the latest 5 threads started today by 100% US AA Bogleheads convincing themselves they are doing the right thing....oh wait. The reality is, I don’t think 500 years of US out performance data would convince many to change their plan, their goal is to be as diversified as is possible, and the consequences are secondary (taxes, returns etc).

What does it for me is this: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Diversification reduces volatility right? Well a 30/30/40 (international/us/bonds) has the same return and 67% more volatility than a simple 35/65 US only portfolio. Tell me again how the diversification works? I take more risk for the same return? No thanks. It just makes no sense to me.
I'll take advice from Vanguard over a few "armchair" experts on this board. Good luck investing in the rear view mirror.

Live long and prosper.
I invest in U.S. index funds and ETFS. I trade International Index funds and ETFs. Frankly, I am suspicious of any investment company advice that is basically selling their book.
You're suspicious of Vanguard? Really?
VTWAX and chill.

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TheTimeLord
Posts: 6294
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by TheTimeLord » Tue May 07, 2019 8:53 am

lostdog wrote:
Tue May 07, 2019 8:43 am
TheTimeLord wrote:
Tue May 07, 2019 8:36 am
lostdog wrote:
Tue May 07, 2019 8:28 am
mrspock wrote:
Tue May 07, 2019 12:56 am
columbia wrote:
Mon May 06, 2019 7:25 pm
The only thing that matters is returns, not your ideology.
Don’t waste your time arguing international AA. Instead go read the latest 5 threads started today by 100% US AA Bogleheads convincing themselves they are doing the right thing....oh wait. The reality is, I don’t think 500 years of US out performance data would convince many to change their plan, their goal is to be as diversified as is possible, and the consequences are secondary (taxes, returns etc).

What does it for me is this: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Diversification reduces volatility right? Well a 30/30/40 (international/us/bonds) has the same return and 67% more volatility than a simple 35/65 US only portfolio. Tell me again how the diversification works? I take more risk for the same return? No thanks. It just makes no sense to me.
I'll take advice from Vanguard over a few "armchair" experts on this board. Good luck investing in the rear view mirror.

Live long and prosper.
I invest in U.S. index funds and ETFS. I trade International Index funds and ETFs. Frankly, I am suspicious of any investment company advice that is basically selling their book.
You're suspicious of Vanguard? Really?
Am I suspicious of any company that had been steady adding International (or any asset class) to their multi-asset products then telling me how great it is to own what they added. Also, I know of no reason to consider Vanguard a good, bad or indifferent source of macro economic guidance and considering they are a discount house I would be shocked if they put meaningful resources into it. Lastly, it seemed obvious that Vanguard and the late John Bogle had diverged somewhat in their opinions. If anyone else was introducing the stream of new products Vanguard has been they would have been almost universally criticized on this forum. The one saving grace is the new products do carry lower costs.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

RJC
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by RJC » Tue May 07, 2019 9:11 am

Doesn't Vanguard also push for international bonds?

DB2
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by DB2 » Tue May 07, 2019 9:16 am

TheTimeLord wrote:
Tue May 07, 2019 8:53 am
lostdog wrote:
Tue May 07, 2019 8:43 am
TheTimeLord wrote:
Tue May 07, 2019 8:36 am
lostdog wrote:
Tue May 07, 2019 8:28 am
mrspock wrote:
Tue May 07, 2019 12:56 am


Don’t waste your time arguing international AA. Instead go read the latest 5 threads started today by 100% US AA Bogleheads convincing themselves they are doing the right thing....oh wait. The reality is, I don’t think 500 years of US out performance data would convince many to change their plan, their goal is to be as diversified as is possible, and the consequences are secondary (taxes, returns etc).

What does it for me is this: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Diversification reduces volatility right? Well a 30/30/40 (international/us/bonds) has the same return and 67% more volatility than a simple 35/65 US only portfolio. Tell me again how the diversification works? I take more risk for the same return? No thanks. It just makes no sense to me.
I'll take advice from Vanguard over a few "armchair" experts on this board. Good luck investing in the rear view mirror.

Live long and prosper.
I invest in U.S. index funds and ETFS. I trade International Index funds and ETFs. Frankly, I am suspicious of any investment company advice that is basically selling their book.
You're suspicious of Vanguard? Really?
Am I suspicious of any company that had been steady adding International (or any asset class) to their multi-asset products then telling me how great it is to own what they added. Also, I know of no reason to consider Vanguard a good, bad or indifferent source of macro economic guidance and considering they are a discount house I would be shocked if they put meaningful resources into it. Lastly, it seemed obvious that Vanguard and the late John Bogle had diverged somewhat in their opinions. If anyone else was introducing the stream of new products Vanguard has been they would have been almost universally criticized on this forum. The one saving grace is the new products do carry lower costs.
Larry Swedroe, Willam Sharpe, etc. and others recommend international and/or global market cap weighting for equities. I don't think it's a Vanguard conspiracy.

John Bogle admitted he was a loner when it came to his views of not owning international. He also lived in a period of time that is going to obviously be much, much different in the future. However, either way, I really don't like to be bet when it comes to investing. Hence, global market cap weight takes care of that in my opinion.

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TheTimeLord
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Re: International Exposure — A Fresh Look at Your Stock Portfolio

Post by TheTimeLord » Tue May 07, 2019 9:23 am

DB2 wrote:
Tue May 07, 2019 9:16 am
TheTimeLord wrote:
Tue May 07, 2019 8:53 am
lostdog wrote:
Tue May 07, 2019 8:43 am
TheTimeLord wrote:
Tue May 07, 2019 8:36 am
lostdog wrote:
Tue May 07, 2019 8:28 am


I'll take advice from Vanguard over a few "armchair" experts on this board. Good luck investing in the rear view mirror.

Live long and prosper.
I invest in U.S. index funds and ETFS. I trade International Index funds and ETFs. Frankly, I am suspicious of any investment company advice that is basically selling their book.
You're suspicious of Vanguard? Really?
Am I suspicious of any company that had been steady adding International (or any asset class) to their multi-asset products then telling me how great it is to own what they added. Also, I know of no reason to consider Vanguard a good, bad or indifferent source of macro economic guidance and considering they are a discount house I would be shocked if they put meaningful resources into it. Lastly, it seemed obvious that Vanguard and the late John Bogle had diverged somewhat in their opinions. If anyone else was introducing the stream of new products Vanguard has been they would have been almost universally criticized on this forum. The one saving grace is the new products do carry lower costs.
Larry Swedroe, Willam Sharpe, etc. and others recommend international and/or global market cap weighting for equities. I don't think it's a Vanguard conspiracy.

John Bogle admitted he was a loner when it came ot his views of not owning international. John Bogle also lived in a period of time that is going to obviously be much different in the future.
Not suggesting a Vanguard conspiracy, just questioning making a decision based on Vanguard's publish macro research for a 10 year period especially when it dovetails right into what they are increasingly selling. Vanguard may very well believe this to be the proper course for investors, just not sure why anyone views Vanguard's option on this as any more valid than any other opinion on the topic.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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