Although stocks in the S&P 500 are typically considered to be domestic in nature, the reality is that many of them generate more the half of their revenues outside of the United States. After apple pie, there is nothing more American than Coca-Cola and Heinz Ketchup, right? The reality is that both Coke (KO) and Heinz (HNZ) generate more than half of their revenues outside of the United States, and as a result, individual investors with US equities may have a more diversified portfolio than they think.
In periods where the US dollar is weak, having a portfolio of multi-national companies can work in an investor's favor. However, when the dollar is strong, those multi-nationals will often underperform the companies that generate the majority of their revenues in the United States. With that consideration in mind, using our Database of International Revenues, we have grouped stocks in the S&P 500 into two distinct groups. The first basket, called Domestics, generates all of its revenues within the United States/North America. On the opposite end of the spectrum, all stocks that generate more than half of their revenues outside the United States are included in the Internationals basket. Based on this criteria, the Domestics basket contains 121 stocks while the Internationals contains 122.
The chart below shows the performance of each basket over the last 12 months. As shown in the chart, from December through early April, both baskets of stocks tracked each other pretty closely. Beginning in April, however, just as the debt crisis in Europe was bubbling up, the Internationals began to underperform the Domestics by a wide margin. The outperformance of the Domestics continued through the Summer and early Fall, but beginning in October, the Domestics began to falter. As the election came and went, investor concerns regarding the fiscal cliff overshadowed issues in Europe and the Domestics began to underperform. While both baskets of stocks have bounced in the last two weeks, the Domestics basket has continued to underperform the Internationals as fiscal cliff concerns weigh on the markets. Based on this trend, we would continue to expect to see the Domestics underperform until there is some resolution with regards to the fiscal cliff.
Wondering which stocks are most exposed to international and domestic markets? Bespoke Premium annual subscribers can request free access to our International Revenue Database, which breaks down revenue exposure for stocks in the Russell 1000. If you are a current Bespoke Premium subscriber and would like to receive access, contact us today. If you are not yet an annual Premium member and wish to subscribe, sign up today!