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

and 7 is different from the S&P 500 and STOXX Europe 600. We note that the percentage sales (or cap-weighted sales) of Asia Pacific companies from their local region (i.e., Asia Pacific) has increased from 75% (58%) to 79% (69%) from FY 2003 to FY 2012. Yet, for the most recent period, FY 2012, 20% of sales (or 31% of cap- weighted sales) comes from outside the region, which is significant. The reliance of Asia Pacific companies on European markets has remained constant at around 8% (10% in the case of cap-weighted sales) from FY 2003-FY 2012. The sales exposure (or cap-weighted sales exposure) to the Americas has declined from 17% (31%) to 12% (19%). The sales exposure (or cap-weighted sales exposure) to Africa and the Middle East has increased from 0.73% (1.25%) to 1.59% (1.63%). Also we find that the weight of stocks of companies in

regions. At the same time, we also note that exposure (or cap-weighted sales exposure) of European companies to Asia Pacific has doubled from 8% (9%) to 16% (20%). Similarly, the sales exposure and cap-weighted sales exposure of European companies to Africa and the Middle East has doubled from 2% to 4%, although the base is low. The sales exposure (or cap- weighted sales exposure) to the Americas has declined from 27% (36%) to 25% (28%). Also we find that the weight of stocks of companies in the index which are not majorly exposed to the Developed Europe market (companies with less than 50% exposure to Developed Europe) has increased from 43.61% in June 2004 to 64.95% in June 2013 (see Appendix: Table 11).

The observations for FTSE Developed Asia Pacific companies reported in Figures 6

Figure 4: STOXX Europe 600 (Regional Breakdown)

Figure 5: STOXX Europe 600 (Regional Breakdown)

29

An EDHEC-Risk Institute Publication