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 3: Application to Performance Attribution

Table 11: Return contribution to S&P 500 of stocks with varying Local Market exposure: The table below reports the breakdown of the annualised excess return of the S&P 500 into the performance of three portfolios formed by sorting stocks based on their sales exposure to the United States market. To form portfolios, we sort stocks by their United States sales exposures. We then select the top stocks up to 33% of cumulative market cap (High), and the bottom stocks up to 33% cumulative market cap (Low), and form cap-weighted high and low exposure portfolios based on these sorts. Stocks which are not included in either extreme portfolio form the medium portfolio (Mid). The portfolios are formed at the end of June every year, using geographic segmentation data for the previous fiscal year. The statistics are based on daily total return series (with dividends reinvested) in USD. The portfolio constituents are weighted by their total market capitalisation in (USD) at the end of June every year. The figures for High and Low portfolios are highlighted in bold. For performance attribution, we use OLS regression, wherein the dependent variable is the excess return on the S&P 500 and independent variables are excess returns on High, Mid and Low portfolios. All returns are in excess of the risk-free rate. The risk-free rate in US Dollars is measured using returns on the Secondary Market US Treasury Bills (3M). The source of geographic segmentation data is DataStream (Worldscope) supplemented by Bloomberg. In the event that the excess return on the index is negative, we do not calculate % contribution as it gives a less meaningful figure. Such figures are replaced by NA.

High

Mid

Low

Unexplained

S&P 500

Contr.

% Contr.

Contr.

% Contr.

Contr.

% Contr.

Contr.

% Contr.

4.29% 106.19% 1.34% 30.39% 3.73% 24.02% -7.17% NA -9.88% NA 5.69% 39.93% 8.79% 28.88% 2.20% 40.89% 7.60% 37.06% 7.34% 30.01%

-1.27% -31.44% 0.95% 21.54% 8.23% 52.99% -3.30% NA -9.37% NA 3.73% 26.18% 13.86% 45.53% 2.81% 52.23% 3.53% 17.21% 9.17% 37.49%

July 2004 - June 2005 4.04%

0.10% 2.48%

0.91% 22.52%

July 2005 - June 2006 4.41%

1.96% 44.44%

0.17% 3.85%

July 2006 - June 2007 15.53%

3.12% 20.09%

0.46% 2.96%

July 2007 - June 2008 -16.02%

-4.83% NA

-0.71% NA

July 2008 - June 2009 -26.69%

-7.00% NA

-0.43% NA

July 2009 - June 2010 14.25%

4.86% 34.11%

-0.03% -0.21%

July 2010 - June 2011 30.44%

7.83% 25.72%

-0.04% -0.13%

July 2011 - June 2012

5.38%

0.85% 15.80%

-0.48% -8.92%

July 2012 - June 2013 20.51%

9.36% 45.64%

0.03% 0.15%

July 2013 - June 2014 24.46%

8.06% 32.95%

-0.12% -0.49%

Table 12: Return contribution to STOXX Europe 600 of stocks with varying Local Market exposure: The table below reports the breakdown of the annualised excess return of the STOXX Europe 600 into the performance of three portfolios formed by sorting stocks based on their sales exposure to Developed Europe. To form portfolios, we sort stocks by their Developed Europe sales exposures. We then select the top stocks up to 33% of cumulative market cap (High), and the bottom stocks up to 33% cumulative market cap (Low), and form cap-weighted high and low exposure portfolios based on these sorts. Stocks which are not included in either extreme portfolio form the medium portfolio (Mid). The portfolios are formed at the end of June every year, using geographic segmentation data for the previous fiscal year. The statistics are based on daily total return series (with dividends reinvested) in USD. The portfolio constituents are weighted by their total market capitalisation in (USD) at the end of June every year. The figures for High and Low portfolios are highlighted in bold. For performance attribution, we use OLS regression, wherein the dependent variable is the excess return on the STOXX Europe 600 and the independent variables are excess returns on High, Mid and Low portfolios. All returns are in excess of the risk-free rate. The risk-free rate in US Dollars is measured using returns on the Secondary Market US Treasury Bills (3M). The source of geographic segmentation data is DataStream (Worldscope) supplemented by Bloomberg. In the event that the excess return on the index is negative, we do not calculate % contribution as it gives a less meaningful figure. Such figures are replaced by NA.

STOXX Europe 600

High

Mid

Low

Unexplained

Contr.

% Contr.

Contr.

% Contr.

Contr.

% Contr.

Contr.

% Contr.

5.46% 35.94% 6.20% 28.11% 8.96% 31.38%

4.40% 28.97% 7.98% 36.17% 7.33% 25.67% -2.92% NA -13.67% NA 6.57% 99.24% 14.74% 39.72%

July 2004 - June 2005 15.19%

4.25% 27.98%

1.08% 7.11%

July 2005 - June 2006 22.06%

6.57% 29.78%

1.31% 5.94%

July 2006 - June 2007 28.55%

11.84% 41.47%

0.43% 1.51%

-7.04% NA

July 2007 - June 2008 -14.03%

-2.82% NA

-1.25% NA

July 2008 - June 2009 -34.35% -14.95% NA

-7.52% NA

1.80% NA

-1.36% -20.54% 9.34% 25.17%

July 2009 - June 2010 6.62%

1.39% 21.00%

0.02% 0.30%

July 2010 - June 2011 37.11%

13.15% 35.44%

-0.12% -0.32%

-6.23% NA

-3.72% NA

July 2011 - June 2012 -16.11%

-6.41% NA

0.26% NA

6.72% 33.04% 11.61% 38.25%

7.81% 38.40% 8.63% 28.43%

July 2012 - June 2013 20.34%

5.55% 27.29%

0.26% 1.28%

July 2013 - June 2014 30.35%

10.35% 34.10%

-0.24% -0.79%

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