M*: You're More Internationally Diversified Than You (Probably) Realize

Ted

FYI: You have likely heard the claim that equity portfolios can't help but to be global. Multinationals account for most stock market assets, and they sell their wares everywhere. Where a blue-chip company is headquartered does not indicate its revenue sources.

In a new report, Morningstar puts that belief to the test. I can't link to the article, because it's tucked away in Morningstar Direct's institutional software, but I can provide its highlight.
Regards,
Ted
https://www.morningstar.com/articles/914896/youre-more-internationally-diversified-than-you-pr.html

Investor

I kind of agree that large cap companies have a lot of international exposure. Since large cap companies make most of the traditional indices, what is considered US market index has a lot of international exposure. You need to go down the capitalization to mid even small cap companies to find those companies whose fortunes lie in the geography they live in and even that is not guaranteed in a bunch of sectors such as tech.

Sven

That is what John Bogle and Warren Buffett have been saying, especially the larger caps where their revenues are increasingly globally oriented. Cola Coca is a good example. The other aspect is the supply chain. For example, vast majority of key ingredients of high value drugs are manufactured outside of the US.

Old_Joe

@Sven- Yes, for example one of the key ingredients in valsartan and many other blood-pressure medicines is made in China. The only reason that we consumers now know this is that all of the products made with this Chinese ingredient have been "recalled".

Why did I put "recalled" in quotes? To show the extent of the problem, evidently there is currently no major alternative supplier of the dubious ingredient. We have been advised to keep taking the stuff until someone figures out what to do about the situation, and not to worry too much, as the chances of actually getting cancer are pretty slim. So we have a non-recall "recall".

How reassuring!

Sven

@Old_Joe, it is all about greed and the bottom line to the drug companies. US used to manufacture fine chemicals including these active ingredients used in drugs. Then came these low cost manufacturers in China and India who may not use the same manufacturing practices used in the western countries. The oversight of FDA can only do so much. That is unfortunately the dark side of globalization.

Investor

@Sven you are right and there are some people going around to get rid of that minimal FDA oversight as well. Regulations are there to protect the public but companies have money to buy politicians. As long as we have corporate money in politics, needs of the public becomes secondary.

Anyway, steering back to topic. I used to think 50 US/50 International portfolio was an appropriate one and some people were even suggesting a larger percentage for international. I think with the exposure of US companies in international markets, I would consider 60/40 a reasonable portfolio.