International investing is all the rage these days, at least in the equity business. For what little equity they’ve been buying at all, investors recentlyhave been dumping domestic stock funds and buying international stock funds. Often, this is based on an assumption like “the dollar has been going down, therefore international funds should do better than domestic funds.” This might not be having the desired effect at all. You shouldn’t avoid domestic stock portfolios on principle. The reason is that many of them have significant indirect foreign exposure. According to a Morningstar article, even the indexes have big international exposure:
Gauged according to underlying sales, after all, the S&P 500 isn’t a domestic-stock index. It’s an international benchmark, one whose companies streamed in 46.6% of their revenue from foreign shores last year, according to S&P’s estimates. Approximately a third of that sum, moreover, was rung up in emerging markets.
The upshot: Seen through a revenue-focused lens, Vanguard 500 and SPDR S&P 500 aren’t plain-vanilla domestic-market trackers, and your portfolio likely tilts further in the direction of foreign fare than you might have imagined…
In other words, a plain-vanilla domestic equity account has much more ability to tilt toward international investing than commonly realized.
