1Yr·

Country weightings in the portfolio

Reading time: approx. 5min (fast), approx. 8min (slow, @leveragegrinding 😛), think about 3min (@DonkeyInvestor 🙉)


Over the last few days, I've been thinking about the weighting of some regions in my portfolio. There's always a heated debate about how heavily you should weight the USA, Europe, Asia and the rest of the world in your portfolio. Should you have "China shares" at all or how much of the USA is too high?


Especially when it comes to the weighting of US companies, the debate is heated: for some, an overweighting of US companies is perfectly fine, for others it is a cluster risk. In the MSCI World for example, the USA is weighted at 60%. This is why the classic 70/30 strategy MSCI World ETF, an emerging markets ETF is also emerging markets ETF is often added. It becomes even more complex when a Europe ETF on the STOXX Europe 600 is added.


Something that rarely plays a role in the debate, however, is the fact that this weighting only reflects the countries of origin of the stock corporations. Corporations like Apple $AAPL (-0.37%) , Microsoft $MSFT (+3.55%) or Google $GOOGL (-0.65%) may be US companies on paper, but they generate their sales worldwide. One LVMH $MC (+1.8%) may be from Europe, but it generates the majority of its sales in North America and Asia. Toyota $7203 (+0.44%) is from Japan, but generates sales worldwide.


I think you recognize the problem: it is important to get an impression of your own regional exposure are not the countries of origin of your shares but rather the question where the sales are generated are generated. I wanted to investigate this question specifically for my portfolio.



Inventory


In my personal portfolio, the distribution of the individual position sizes (as of May 24, 2023) looks exactly like this:


19.3% Apple $AAPL (-0.37%)

11.1% Costco $COST (-0.37%)

9.9% Allianz $ALV (+0.51%)

9.5% VICI $VICI (-2.76%)

8.3% United Health $UNH (-0.32%)

5.6% Microsoft $MSFT (+3.55%)

5.4% Visa $V (-0.34%)

4.4% KLA-Tencor $KLAC (+0.69%)

4.1% BJ's Wholesale Club $BJ

4.0% Starbucks $SBUX (+0.47%)

3.4% Paychex $PAYX (-0.96%)

3.3% DEFAMA $DEF (+0.71%)

3.1% Air Products & Chemicals $APD (-1.17%)

2.9% Rio Tinto $RIO (-0.8%)

2.7% McDonald's $MCD (-0.36%)

1.4% Greencoat UK Wind💚 $UKW (-1.04%)

0.5% Coca Cola $KO (-0.69%)


This corresponds to a weighting of 81.4% USA and 18.6% Europe. It should be noted that this weighting corresponds to a weighting by countries of origin of the companies. So do I have a huge cluster risk as far as the USA is concerned? In addition, there are no Asian shares in my portfolio.


Now I have made the effort (in sweaty fashion) to all annual reports of the 17 companies on the corresponding investor relations pages. In some cases, sales are broken down by region. Unfortunately, it is clear that not every company provides the same breakdown. For example Apple breaks down its sales in [1] according to Americas, Europe, Greater China, Japan and Rest of Asia Pacific region. The situation is different for Visawhere in [2] sales are only broken down by U.S. and international is broken down.


After a lot of back and forth, I finally decided to split into the regions North America, Europe and Asia & Rest of the World region. North America comprises the USA, Canada and Mexico. Europe is mainland Europe and Great Britain. The last category then includes China, Japan, South Korea, Australia and everything else.


Virtually every company indicates the proportion of sales that are generated in the USA. As mentioned in the Visa example, this is not necessarily useful to find out the share of sales for Europe and Asia when reporting according to the principle "USA and the rest of the world", so in some cases I had to calculate values with a "good guess" estimate. A little online research helped me here. What is important here is not the last decimal place but rather the correct order of magnitude of the sales distribution.



Result


Before I present the results of my analysis, I would like to say a few words about the methodology. In my calculation, the sales shares of the individual companies are weighted by portfolio share.


ExampleApple has a 19.3% weighting in my portfolio and generates 18.8% of its sales in Europe. The 18.8% European share is then weighted at 19.3% in my calculation. Apple therefore accounts for around 3.6% of Europe in my portfolio.


Without further ado, here is the result of the weighted distribution of sales by region in my personal portfolio:


56% North America | 24% Europe | 20% Asia & Rest of the World


The difference to the country weightings in my portfolio are therefore


-25.4% North America | +5.4% Europe | +20% Asia & Rest of the World


Despite an 81.4% weighting of the USA in my portfolio, only 56% of sales are generated in North America, even though I have real USA-pure-plays such as VICI and BJ's Wholesale, which generate 100% of their sales in the USA, have a high weighting in the portfolio. The European share is about 5% larger than the countries of origin of my companies would suggest and despite not a single Asian company in my portfolio, 20% of the weighted sales are generated in Asia and the rest of the world.



Conclusion


Diversification by country is important. In my opinion, however, far too much attention is paid to the countries of origin instead of really looking at where the companies' sales are actually generated. Unfortunately, there is no quick way to find out. The route via the individual investor relations pages of the companies is laborious and still incomplete. I would like to see greater transparency from some companies here. The following were exemplary here Apple and KLA-Tencor.


In addition to the pure "sales risk", there is of course still the political- and regulatory risk. I can sleep peacefully with the distribution of turnover in my portfolio, even if it might be a nightmare for others.


What is your opinion on this?



Sources:

[1] Apple Financial Report 2022: https://annualreport.stocklight.com/nasdaq/aapl/221338448.pdf

[2] Visa Financial Report 2022: https://s29.q4cdn.com/385744025/files/doc_downloads/2022/Visa-Inc-Fiscal-2022-Annual-Report.pdf


#dividende
#portfoliofeedback
#dividendendepot

144
55 Comments

profile image
15
profile image
A rare post that adds real value. Thank you!
8
profile image
So for this 8 minutes is slow reading Good post 💪🏻@ccf
5
profile image
@leveragegrinding 🙈 I had first 5min stand 😜 thank you
1
profile image
@leveragegrinding Maybe one or the other with residence in Brandenburg and E-network would like to open a link. There you are just for charging at 7 minutes!
2
profile image
Thank you, finally someone has written this down. Then I can save myself the argumentation in the future and refer to you instead. For that a @ccf. I also read it in under 5 minutes.
5
profile image
@DonkeyInvestor thank you 😌 How long did it take you exactly? 🤓
profile image
@RealMichaelScott think so good 3
1
profile image
@RealMichaelScott good 3rd seconds.
1
profile image
@DonkeyInvestor and for that a ccf? I am excited
profile image
@RealMichaelScott can't help it that I read so fast
1
I'm talking when everyone criticizes me for having about 28% of my shares in Germany, whereas BASF, for example, doesn't even earn 20% in Germany, and Telekom (only 35%).
4
profile image
Thank you. Now please calculate the same for the FTSE All World with all positions 😂😜
3
profile image
@six in the next life then 😂😂
1
profile image
Good point and strong research. That would be a valuable portfolio analysis feature if there was a service there!
3
profile image
profile image
Super contribution. Thank you 🤩
2
profile image
I find top👍
1
profile image
1
profile image
1
profile image
Respect for your work 👍@ccf
1
profile image
profile image
This time without escalation, "only" short & crisp, but no less valuable in my eyes 👉🏻 @ccf 17 (!!!) annual reports .... I would like to have your brain power 😄. Thanks for your summary
1
profile image
@FrauManu thank you 😅 most of the time, however, was just scrolling until I was in the right place 😂
profile image
@FrauManu I don't want to brag but I'm currently fighting my way through 40 annual reports (regarding ESG...) But I also have a HiWi :D
2
profile image
@CMustermann that is even more fun, of course.
1
profile image
@CMustermann ok, that's a board 😩. The Isselmeer is right on the doorstep, relaxation guaranteed
1
profile image
Strong depot 💪
1
profile image
1
profile image
1
profile image
profile image
Except for the fact that I absolutely agree with you about the weighting - I just want to emphasize that I perceived the small heart after $UKW especially positive. 🤓💚
1
profile image
@GreenWash that was the small fine detail 💚
1
profile image
Important topic! 👌 @ccf Is obviously not prioritized by both investors and the companies themselves, although it is a very important factor to work with.
1
Show answer
profile image
For your reading - benchmark (3 min) and was quite relaxed
1
Show answer
profile image
1
Show answer
profile image
Great contribution. On the other hand, there are also companies in Europe and Asia that achieve high sales in North America - LVMH, TSMC, Novo Nordisk... You don't have to calculate it to the per thousand, but you should have in mind in which regions how much sales are made. Thank you.@ccf
1
Show answer
Thank you Michael Scott for the great series and this post ♥️
1
Show answer
profile image
Thank you for your efforts and the disclosure of your findings. Risk considerations should also always be evaluated with their probability of occurrence, so this approach would probably be one of the last analysis steps. Nevertheless, there could be additional potential here in connection with the growth expectations of the respective countries
1
Show answer
profile image
I have also done the work 😂 pretty big excelsheet become.
1
View all 2 further answers
Deleted User
1Yr
Comment was deleted
View all 2 further answers
Deleted User
1Yr
Comment was deleted
Show answer
Deleted User
1Yr
Comment was deleted
View all 2 further answers
Join the conversation