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Un-limit the true potential of your asset allocation

Jun. 24, 2015

Speaker : Dr. Jan-Carl Plagge , Director, STOXX Ltd.

Jun. 24, 2015 Speaker : Dr. Jan-Carl Plagge

Investors typically assume that an investment in standard regional equity indices that select companies according to their country of domicile will provide them with adequate exposure to the targeted region. Far from it. Companies based in the US, for example, generate only about 64% of their revenue within the US. The remainder is generated in other parts of the world, with emerging markets contributing about 10%. The same observation holds true for other developed markets that, on average, generate only about 65% of their revenue within developed markets outside of the US. Companies incorporated in emerging markets, on the other hand, generate a slightly higher portion of revenue within emerging markets. But still roughly 25% of total revenue comes from regions outside of emerging markets (see Figure 1). Consequently, companies selected into these regional equity indices do not only provide exposure to the targeted region but also to foreign markets – markets to which investors might not want exposure. What makes matters worse is that investors are usually not aware of this indirect exposure and cannot control it.

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Anand Venkataraman, CFA, Head of Product Management – Index, Qontigo; Ladi Williams, Product Manager – Index, Qontigo Jul. 30, 2020

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