The case for overseas investing is clear. Many UK stocks are heavily exposed to British economic and political factors. It follows that a stock portfolio which is too reliant on the health of the UK economy could end up being trashed in the event of an economic crisis or systemic shock.

A more internationally diversified portfolio has the potential to offer exposure to a broader range of market forces. However, traditional overseas investing, based on targeting companies listed on, for example, German exchanges, may not always adequately expose investors to German market forces.

Although the FTSE 100 is considered to be a gauge of large cap UK equities, many investors would be surprised to learn that some of the companies in the index are hardly British at all.   Many multinational firms generate a significant proportion of their revenues overseas. For example, only around 25% of AstraZeneca’s revenues came from Europe in 2013 - the rest was generated from other regions around the world.

The same is true in the States, where an estimated 47% of revenues at S&P 500 companies are made outside the US. Closer to home, analysis by HSBC shows that 24% of Spanish revenues came from emerging markets in 2013.

Furthermore, partly as a result of globalisation and international commerce, the percentage of overseas revenues is growing and becoming more important for British companies. This is illustrated in Figure 1, provided by MSCI Barra, which shows a rising trend in foreign sales among UK companies (based on a capitalization-weighted average). In 2008, more than 50% of UK sales came from abroad.

It follows that UK investors can expose their portfolio to overseas economic factors by buying firms that are UK-listed, but generate a large proportion of their revenues overseas.


EmnSZ4jlfLr-vwGkh8ZIBOwocAF7nvJy0k59Rk5H

How can investors identify where revenues are made?

The good news is that investors can find out where companies make their revenues by looking through annual or interim reports. Figure 2 is a pie chart from Carillion’s (CLLN) annual report. It shows the proportions of revenues generated in Canada, the UK, North Africa and the Middle East respectively.


Some companies also provide a tabulated, region by region breakdown of their revenue sources. Again, this data…

Unlock the rest of this article with a 14 day trial

Already have an account?
Login here