What is revenue exposure? It's simply a breakdown of where around the world companies in a cap-weighted stock index sell their goods and services. For example, a 100% U.S. stock portfolio (at left, chart below) makes 70% of its sales domestically and 30% overseas in various world regions. As the international stock allocation increases, the percentage of overseas revenue exposure in the portfolio also naturally increases. With a 25% portfolio allocation to international stocks (middle chart), foreign revenue exposure is about 50% — and rises to over 70% with a 50% U.S./50% international allocation (the world cap-weighted portfolio, at right).
How is this helpful for portfolio allocation? If, for example, an investor wanted to target the revenue exposure of her stock portfolio one-third each to the U.S. economy, to foreign developed countries and to emerging markets, then a 60% U.S./40% international cap-weighted stock mix would be about right today. This allocation is my personal choice — and I've been reluctant to adopt a world cap-weighted stock portfolio (at right above) because it has just a 28% revenue exposure to the U.S. economy.
Hope Forum members will find this updated information useful — or at least of interest. Any thoughts?