Geographical Revenue Diversification of My Holdings

Over the course of last few days, most companies have either released annual reports or filed 10-K with SEC, which reminded to go back and update my geographical revenue diversification data. Last time I reviewed this was in Dec 2014, where I evaluated the geographical diversification of my holdings.

To reiterate from the old article, simply looking at the domain of a company where the stock is listed does not provide us with the full picture since we live in a global economy with multinational companies. Most companies have international operations and record revenue from various geographic regions. Looking at each company’s geographical revenue diversification of my holdings provides me with that extra bit of knowledge, visibility and understanding of my portfolio.

Geographical Revenue Diversification of My Holdings

The following table lists details of geographical revenue diversification of my holdings. The data is for each company’s 2015 fiscal year.

RevDiversification2015

Based on the dollar amount invested in each holding, geographical revenue diversification for my portfolio stands at 42% from USA, 32.6% from Canada, 6.5% from Europe, 8.1% from Asia-Pacific and 10.8% Other International regions.

The portfolio has changed a bit since my last update in Dec 2014 and the following chart summarizes the difference in my weighting. The overall diversification is something that I’ve been keeping an eye on over the course of the year. I am making a conscience decision to reduce my home bias (Canada, in my case) and move away from a Canada-heavy portfolio.

Revenue Diversification Changes from 2014 to 2015

Revenue Diversification Changes from 2014 to 2015

I have achieved this by a couple of sales over the course of 2015 and investing more in companies with higher revenue outside Canada. Note that I could still be investing in a company listed on the Canadian exchange, but with an increased presence outside Canada. For e.g., Agrium Inc (AGU) is a Canadian company with only 18% of revenue coming from Canada and has 65% of its revenue generated in US. Similarly, companies such as Algonquin Power & Utilities (AQN.TO) (91% rev from US), Brookfield Infrastructure (BIP.UN.TO) (34% from EU & 37% from Asia-Pacific), Magna International (MG.TO) (29% from US & 34% from EU) provide me with plenty of international exposure.

Summary

Looking at each holdings’ geographical revenue diversification provides me with a better picture of how I am invested in the market. As regular readers are aware, I am a big fan of diversification — not only based on sectors of my holdings, but also geographical diversification of the companies I own. As of my last update in Dec 2014, I realized that I was too heavily invested in Canada, which is a very small market in the world (Canada makes for only 4% of the world market) and wanted to reduce the exposure. I am slowly moving my portfolio shedding some assets and adding others that give me better diversification, so that I am not left vulnerable to problems in one geographic region.

What are your thoughts on my current diversification and the direction I am moving. Share your thoughts below.

Further Reading:

Full Disclosure: Long all companies listed. My full list of holdings is available here.

12 thoughts on “Geographical Revenue Diversification of My Holdings

  1. Got to applaud you for the granular view. But I’m not sure that the result is an accurate depiction for two reasons:

    1) Currency – have the results been converted into a common currency and if so, at what rate? I agree that use of percentages mitigates this to a degree.

    2) SBUX for one, accounting for company owned versus licensed stores, i.e., does a company generated dollar carry the same weight as a licensed dollar? This could distort your geographic distribution as most US stores are company owned whereas a more non-US stores are licensed (notably Japan).

    Interesting data nonetheless.

    • Hi Charlie,
      Thanks for stopping by and commenting.

      1. The percentages are taken from the reporting company’s reports – so if its a US company, the currency used is in US$. Like you mentioned, the use of percentages mitigates the currency fluctuations.

      2. Is there a difference between company-owned vs. licensed revenue? One could argue that revenue whereever it comes from, is revenue nonetheless. Even if we take the example of SBUX – you have revenue in US coming from licensed sales. For e.g., SBUX licenses and sells coffee products through an agreement with PepsiCo. Would those sales be any different from Starbucks company-owned in-store sales?

      The PEP distribution raises another interesting question — is the revenue broken down geographically for those agreements? I dont know. These numbers are more of a high-level view and just gives me one more viewpoint into my portfolio operations. I realize that its not foolproof and I am ok with some error variations 🙂

      cheers
      R2R

  2. Hey R2R,

    That’s a fantastic way to review your holdings. How did you get all this data? Did you trawl through the reports of all of your companies? I think it’s a good idea for you to reduce your Canadian exposure IF you think Canada isn’t going to do too great in the medium term.

    At the moment our portfolio would have a heavy Australian slant, but as time goes by I imagine more of our companies will have revenue in different countries. Although, when I do think of our companies, a lot have a presence in New Zealand and then most have some of their business in the USA, Europe or Asia. Maybe we’d do better than I first thought.

    Tristan

    • Hi Tristan,
      Yes…I went through each company’s annual report and/or 10-K statements to pull this data. Over the course of years, I think Canada will do just fine even though we are a resource-and-service based economy. But I want to move away from home bias and not have half my portfolio invested locally. When you look at the global markets, the Canadian market only gives you exposure to about 4% of the world economy. Yet, most investors tend to put all their savings in the local companies, simply because they are familiar with the names and products/services.

      I dont want to be left hanging if there is a local disaster, war, recession, financial crisis etc. So, I want to make sure that I have a good diversification geographically.

      Best
      R2R

  3. This is surely an different way to look at diversification. Like most people, I look at the place where the stock is traded. This approach is much more in depth and provides real insight.

    I support the idea to have a global exposure, that is my goal as well.

    How did you get the dat for the funds? Is it also looking at each company one by one?

    • No, the funds data might be a bit skewed. I simply take the data as reported by the fund company…which could be just the listing country of each company. Unfortunately, its not practical for me to go thru each holding of the fund and get the geographical exposure — since we are invested in broad market funds, which hold hundreds, if not thousands of companies.

      Thanks for stopping by and the comment.

      Best
      R2R

  4. Nice work. I have looked at this myself, just not in as much granular detail – so kudos.

    Canada is small on the world stage but there are companies that have international exposure, including banks like TD and RY.

    Over time, I’m looking at more U.S. and international exposure, but I will take some from Canadian companies in the process. Eventually I’d like to have at least 50% of my portfolio in U.S and international equities. I figure it will take me about any 10 years of new contributions to get there.

    • Canadian banks provide a good way to get exposure to international markets – esp companies like BNS. It takes a while to reposition doesnt it? Ive been working on it and dont want to sell my Cdn exposed companies, so that move has been pretty slow on my end.

      R2R

  5. I’ve been thinking about true geographical diversification of my portfolio a lot lately. Although I haven’t sat down to figure out my global exposure. I’m sure it’s tilted much more internationally than one would think considering I only own 4 companies that aren’t based in the US.

    • Im sure it is. Most US companies have operations across the world. If you look at the S&P500 as a whole, I think 52-53% of the total comes from international sources…and that percentage is rising each year.

      Best
      R2R

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