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

Figure 11: STOXX Europe 50 (Regional Breakdown)

Exposure to Developed/Emerging Markets After analysing the exposure of the five developed market indices to the four different geographic regions, in this section we analyse the exposure of companies in these indices to developed markets and emerging markets. First, in Figure 12 below we report the breakdown of global GDP into developed and emerging markets for the period 2003 to 2012 to give an idea of the relative size of these markets and how it has evolved over time. We note that the share of Developed markets in world GDP has declined notably from around 77% to 69% in the 10-year period. During the same period the share of Emerging markets has increased from 23% to 31%.

significant, and among the three broad indices (S&P 500, STOXX Europe 500 and FTSE Developed Asia Pacific) the highest is the STOXX Europe 600 (45% in FY 2012) and the lowest is FTSE Developed Asia Pacific (21%). Moreover, we note that the exposure of companies in the S&P 500 and STOXX Europe 600 to non-domestic regions has increased noticeably: 19% to 27% for the S&P 500 and 36% to 45% for the STOXX Europe 600. The exception is Developed Asia Pacific companies, which have reduced exposure to foreign markets from 25% to 21% from FY2003 till FY 2012. We observe a similar trend if we weight a company's sales exposure by its cap- weight in the index. These observations highlight the need to report exposure of indices to regions based on geographic segmentation of sales data.

Figure 12: Gross Domestic Product (Developed/Emerging Breakdown)

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