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 21: STOXX Europe 50 (Developed/Emerging Breakdown)

Figure 22: STOXX Europe 50 (Developed/Emerging Breakdown)

12%) and lowest for S&P 500 companies (increase of 7%). This again highlights the need to report the exposure of equity portfolios to geographies based on segment level data. Summary We analysed the breakdown of sales of companies in the three broad Developed market indices and two narrow Developed market indices to four regions and into developed and emerging markets. We note that for each of the indices, a significant portion of their sales come from non-domestic regions (21% to 55% in FY 2012). Also, the proportion of sales coming from non-domestic regions has increased over the 10-year period FY2003 to FY2012, except for companies in the FTSE Developed Asia Pacific index. Among the three broad developed market indices, the companies in the STOXX Europe 50

than 50% exposure to Emerging markets) has increased from 1.07% in June 2004 to 5.77% in June 2013 (see Appendix: Table 24), thus confirming the broad trend of an increasing role of foreign economic exposure which is unrelated to the official region of the index. In summary, the companies in the three broad developed market indices (S&P 500, STOXX Europe 600 and FTSE Developed Asia Pacific) have noticeable exposure to emerging markets, and among them the highest is the STOXX Europe 600 (23% in FY 2012) and the lowest is the S&P 500 (14% in FY 2012). Also, we see an increase in the proportion of sales coming from emerging markets for the companies in all three broad developed market indices. Among the three, the percentage increase (over the 10-year period) in sales coming from emerging markets is highest for STOXX Europe 600 companies (increase of

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An EDHEC-Risk Institute Publication