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

we note that the market-capitalisation weight of such companies in the index has increased from 0.10% in June 2004 to 2.87% in June 2013 (see Appendix: Table 6). In Figures 15 and 16 below we report the breakdown of sales of STOXX Europe 600 companies into developed and emerging markets. The sales exposure (or cap- weighted sales exposure) of European companies to emerging markets has more than doubled from 11% (11%) in FY 2003 to 23% (25%) in FY2012, clearly suggesting increasing exposure to emerging markets. Here again, the trend is increasing from year to year. Also we find that the weight of stocks of companies in the index which are majorly exposed to Emerging markets (companies with more than 50% exposure to Emerging markets) has increased from 0.49% in June 2004 to 4.98% in June 2013 (see Appendix: Table 12).

In Figures 13 and 14, we report the sales exposure and cap-weighted sales exposure of S&P 500 companies to developed and emerging markets. We note that the sales exposure (as well as cap-weighted sales exposure) of S&P 500 companies to emerging markets was relatively modest at 7% (9%) in FY 2003, but has now doubled to 14% (19%) in FY2012. To put it differently, the exposure of S&P 500 companies to Developed markets has dropped from 93% (91%) to 86% (81%) during FY2003-FY2012. Moreover, we note that the upward trend in sales exposure to Emerging markets is rather smooth, which means the exposure is increasing every year compared to the previous year, although there are blips in certain years if we look at cap-weighted sales exposure to emerging markets. In terms of the weight of stocks of companies in the index which are majorly exposed to emerging markets (companies with more than 50% exposure to emerging market),

Figure 13: S&P 500 (Developed/Emerging Breakdown)

Figure 14: S&P 500 (Developed/Emerging Breakdown)

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