Morningstar - Summer 2019 - 71

United States

S&P 500

62.0

38.0

United Kingdom

FTSE 100

22.3

77.7

France

Euronext Paris CAC 40

17.5

82.5

Germany

FSE DAX

19.3

80.7

S&P/ASX 200

57.9

42.1

EXHIBIT 3

Australia

Average Market Cap

EXHIBIT 4

Smaller Market Cap, Larger Home-Country Bias Investors can decrease or increase
0%
20
30
40
home-country revenue exposure by paying heed to market
cap.10
% of Revenue Derived From Outside U.S.
45%

Russell 1000
$84B Market Cap

S&P 100
$236B Market Cap
S&P 500

Russell Midcap

$110B Market Cap

$13B Market Cap

Style Exposure Investors can also alter
50
60
80
90
100
their
weighting
to70U.S. revenue
by tilting toward growth or value, in
addition to market-cap sizes.
Percentage of U.S.-Focused Indexes' Revenue
Derived From the U.S., by Style
Greater
Home-Country
Bias
Category Index

Greater
International
Exposure
Core

Growth

Russell 2000

66.8%

63.2%

59.6%

International exposure of U.S. ﬁrms
increases with market cap

$2B Market Cap

Russell Mid Cap

76.2%

73.6%

69.8%

0
50
Average Market Cap

100

150

200

$250B

Source: Morningstar Direct. As a percentage of equity assets when data is available: 97%-100% coverage.
Data as of 09/30/2018.

Thankfully, not every company makes it so difficult
to assess the geographical sources of its
revenue. In fiscal 2017, Nestlé NSRGY reported
country-level sales for 16 of its principal
markets, accounting for 73% of total firmwide
sales. Companies also sometimes disclose revenue
figures for geographies independent of or
in addition to their regional operating segment
classifications. Coca-Cola, for example, transcends
its North America and other geographicalGreater
Greater
Home-Country
based operating segments by reporting International
net
Bias
Exposure
operating revenue from the United States alone
and its international Value
operationsCore
altogether.
Growth
Category Index
Large Cap Mid Cap Small Cap

Russell 1000

Morningstar's Revenue
Exposure
by Region
data
66.8%
63.2%
59.6%
uses country-specific numbers in company
filings
Russellwhenever
Mid Cap available. The present state of
69.8%
financial disclosures,76.2%
however,73.6%
often requires
estimates to standardize the geographical data.
Russell 2000 generates these estimates by
Morningstar
82.8%
81.2%
79.7%
dissecting companies' regional classifications into
their component countries and using gross
domestic product figures to approximate the
proportion of sales allotted to each. Those country
estimates are then asset-weighted for
each security within a portfolio and rolled up to

provide portfolio-level, revenue-exposure
calculations for 13 regions, comprising more
than 240 constituent countries.
Revenue-Weighted Look at Brexit
Knowing what you own is especially important
for U.K. investors amid uncertainty surrounding
the United Kingdom's impending exit
from the European Union. EU countries account
for nearly half of Britain's exports, and
after Brexit, these exports are likely to become
subject to tariffs. The U.K. Treasury, for its
part, expects Britain to become "permanently
poorer" as a result of its departure vote. Economic
recession, increased unemployment,
and depressed company profitability are all
possibilities, if not probabilities, that investors
must evaluate.

Revenue Exposure by Region data can shed light
on the extent to which the British markets
and funds may be vulnerable to the changing
European landscape. As it turns out, for
major U.K. benchmarks the FTSE 100, FTSE 250
Ex-Investment Trust, and FTSE Smallcap
Ex-Investment Trust, revenue exposure to EU

Russell 2000

82.8%

81.2%

79.7%

Large Cap Mid Cap Small Cap

Value

Russell 1000

Source: Morningstar Direct. As a percentage of equity assets when data
is available: 97%-100% coverage. Data as of 09/30/2018.

members (ex-UK) isn't extensive, ranging between
13.2% and 16.3%. Most of this revenue
comes from the EU's largest economies-France,
Germany, and Italy.
On the other hand, to the extent that the United
Kingdom falls into a recession because of
Brexit, a tilt toward small-cap stocks-with their
primarily domestic revenue-could hurt.
The FTSE Smallcap Ex-Investment Trust has
revenue exposure to the U.K. of 55.8%, compared
with the larger-cap FTSE 100's U.K. revenue
exposure of only 24.4%.
Looking at four U.K. active managers' revenue
exposures-Silver-rated Troy Trojan Income,
Silver-rated JOHCM UK Equity Income,
Bronze-rated Invesco UK Strategic Income, and
Bronze-rated LF Woodford Equity Income-
tells a story similar to that of the benchmarks.
Exposure to EU members (ex-U.K.) of these funds
ranges from 8.3% to 17.7% and is less of a
concern than their domestic exposure should
Britain fall into a recession. Invesco UK Strategic
Income and LF Woodford Equity Income
have 58% and 57.7% revenue exposure to the

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Morningstar - Summer 2019

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