If you invest in three broad index funds - say, one for U.S. stocks, one for foreign stocks, and one for U.S. bonds - you’ve already embraced simplicity and diversification. But here’s a twist: did you know that nearly 30-40% of the revenue generated by S&P 500 companies comes from outside the United States?
From tech giants like Apple and Microsoft selling to global markets, to industrial firms navigating international supply chains, many U.S.-listed companies are anything but domestically confined. This raises a question that savvy investors are starting to ask: Should you factor this foreign revenue as part of your international allocation?
Let’s unpack it.
🌍 The Hidden Global Footprint in U.S. Stocks
While your U.S. index fund (like one tracking the S&P 500) is based on domestic listings, the companies within it often operate on a global scale. For example:
Information Technology sector: ~59% of revenue from abroad
Materials: ~47%
Industrials: ~32%
Utilities: Just ~2%
Clearly, not all sectors are created equal when it comes to foreign exposure.
So what does this mean for your portfolio?
🔄 Should You Adjust Your Allocation?
Possibly. Imagine your target allocation is:
60% U.S. stocks
30% international stocks or 33.33% of total stocks (30%/90%)
10% U.S. bonds
If 30% of your U.S. stock fund’s revenue comes from non-U.S. sources, your “real” international exposure might look like this:
Implicit exposure via U.S. stocks: 60% × 30% = 18%
Direct exposure from international fund: 30%
Total effective international exposure: 48%
This translates to an effective international exposure of 53% of your overall stock allocation (48%/90%). This may be in line with your goals or more than you intended.
As a point of comparison, the FTSE Global All Cap Index - covering approximately 7,400 companies across 47 countries - allocates around 58-60% to U.S. stocks, with the remaining 40-42% representing international equities, including both developed and emerging markets. If you consider the implicit exposure via U.S. stocks, the index's effective international exposure is 58-60%.
Some investors use this insight to adjust their direct international allocation, depending on their implicit exposure via U.S. stock funds.
🧮 Quick Tip to Rebalance
Here’s a fast method:
Estimate your U.S. fund's foreign revenue share (e.g., 30%)
Multiply that by its portfolio weight
Add it to your direct international allocation
Adjust to hit your desired global exposure
📌 Example: Let’s say that you have 60% of your portfolio in U.S. stocks and you want 30% international exposure. You already have 18% international exposure from U.S. stocks’ foreign revenue (60% × 30%). Then, you may only need 12% in direct international holdings. If you want 40% international exposure, you may need 22% in direct international holdings.
🧠 Why It’s Not a Perfect Substitute
Don’t ditch your international fund entirely. Revenue abroad doesn’t offer everything: foreign currency exposure, different regulatory environments, access to emerging markets, and local sector opportunities.
Think of your U.S. stocks as giving you indirect global participation - while your international fund adds true global diversity.
Bottom line: Use foreign revenue exposure as a tool for smarter allocation - but keep direct international investments for genuine global reach. It’s about refining your balance, not replacing it.
Disclaimer: This article is not intended to be investment advice. Consult a duly licensed professional for investment advice. The contents of this article are for educational purposes only and do not constitute financial, accounting, tax, or legal advice. Past performance is no guarantee of future results.
