Accounting for Geographic Exposure in Performance and Risk Reporting for Equity Portfolios

Accounting for Geographic Exposure in Performance and Risk Reporting for Equity Portfolios — March 2015

Section 2: Application to Performance and Risk Reporting

markets. Next, in Table 7 below we provide a picture of the breakdown of sales of constituents of the three indices into four regions and into developed and emerging markets. In Table 6, we see that the Americas have the largest share (35.27%) in world GDP followed by Europe (30.52%), Asia & Pacific (28.62) and Africa & Middle East (5.58%). The Developed market constitutes 68.58% of world GDP, and the remaining 31.42% is Emerging market. In Table 7 below, the index constituents are as of June 2013, for which fiscal year 2012 sales have been considered. Two results from Table 7 are worth noting. First, it appears that each regional index has considerable exposure to other regions when considering the geographic exposure underlying the sales of the constituent

The objective of this section is to analyse the exposure of Developed market indices to different geographies. We also analyse the variation in exposure of the Developed market indices to different geographies over the last 10 years. The Developedmarket indices we consider here are the S&P 500, STOXX Europe 600, FTSE Developed Asia Pacific, FTSE 100 and STOXX Europe 50. We classify geographies into four regions: the Americas, Europe, Middle East & Africa and Asia & Pacific. We also classify geographies into Developed and Emerging. The exposure is measured in terms of percentage of sales of index constituents coming from different geographies. First, in Table 6 below, we report the breakdown of global GDP into the four regions and into developed and emerging markets for the year 2012 to provide a snapshot of the relative size of these

Table 6: Gross Domestic Product - The table below reports the breakdown of world GDP into four regions (Africa and Middle East/ Americas/Asia & Pacific/Europe) and into developed and emerging markets. The GDP values are as of 2012 and at 2005 constant prices. The source of data is the United Nations Statistics Division (http://unstats.un.org/unsd/snaama/dnllist.asp). Region % of World GDP Africa & Middle East 5.58% Americas 35.27% Asia & Pacific 28.62% Europe 30.52%

Developed vs. Emerging

% of World GDP

Emerging

31.42%

Developed

68.58%

Table 7: Segment reporting - The table below reports the breakdown of sales of constituents of indices (S&P 500, STOXX Europe 600, FTSE Developed Asia Pacific, FTSE 100 and STOXX Europe 50) into four regions (Africa and Middle East/Americas/Asia & Pacific/ Europe) and into developed and emerging market. The index constituents are as of June 2013, for which sales data is from fiscal year 2012. The source of geographic segmentation data is DataStream (Worldscope) supplemented by Bloomberg. Region Emerging/Developed Africa & Middle East Americas Asia & Pacific Europe Emerging Developed S&P 500 2.28% 73.30% 11.67% 12.75% 13.52% 86.48% STOXX Europe 600 3.69% 24.72% 16.17% 55.42% 22.69% 77.31% FTSE Developed Asia Pacific 1.59% 11.71% 79.35% 7.35% 16.55% 83.45% FTSE 100 4.08% 24.81% 21.85% 49.27% 22.08% 77.92% STOXX Europe 50 4.58% 28.53% 21.64% 45.25% 26.50% 73.50%

26

An EDHEC-Risk Institute Publication