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Performance Based on International vs. Domestic Revenue

We have recently completed our annual update of our International Revenues Database, which breaks down the domestic versus international revenue exposure of companies in the Russell 1000.  The International Revenues Database is available in Microsoft Excel and CSV formats, with easy filter and search features.  All Bespoke Institutional and annual Bespoke Premium members have access to the database.

As we have done in the past, with this year’s update of the International Revenues Database, we also updated our baskets of Domestic and International S&P 500 stocks.  The basket of Domestics is made up of S&P 500 companies that generate at least 90% of their revenues in the United States (or North America if US revenues are not specified), while the Internationals basket is made up of S&P 500 companies that derive at least half of their sales outside of the United States.

As shown in the chart below, both domestically (15.62%) and internationally (22.48%) focused companies have done well over the last twelve months.  The only difference is that the Internationals have handily and steadily outperformed Domestics. 

The main factor driving the buoyancy of the Internationals has been the weak dollar.  The chart below compares the spread in the performance of the Domestics vs. the Internationals (red line) to the US Dollar Index (blue line) over the last year.  When the red line is rising, Domestics are outperforming and vice versa for a falling line.  As you can clearly see, the last year has been characterized by a weak dollar, and with that, weak relative performance from the Domestics.

The reason Domestics underperform when the dollar is weak is two fold.  First, as the dollar weakens, prices of commodities and imported raw materials rise, and that has a negative impact on margins.  Secondly, internationally leveraged companies benefit from the weaker dollar when they translate those foreign earnings into dollars. 

Looking at the chart of the US Dollar compared to the relative strength of Domestics, we have seen both the dollar and Domestics stabilize.  In fact, the US Dollar Index (blue line) has been range-bound since its low last fall, and it is now near the upper end of that range.  Domestics, meanwhile made a low on a relative basis early in 2014 and have been attempting to turn things around.  

As mentioned above, the International Revenues Database is available to all Institutional and annual Bespoke Premium clients.  If you qualify and would like a copy, please contact us today.  If you are not currently a client, sign up for an annual Bespoke Premium membership today and take advantage of our free five-day trial.  Once you make your first annual payment we will send the database over to you.