Wednesday, April 20, 2016

Geographical Revenue Diversification of My Holdings

Over the course of last few days, most companies have either released annual reports or filed 10-K with SEC, which reminded to go back and update my geographical revenue diversification data. Last time I reviewed this was in Dec 2014, where I evaluated the geographical diversification of my holdings.

To reiterate from the old article, simply looking at the domain of a company where the stock is listed does not provide us with the full picture since we live in a global economy with multinational companies. Most companies have international operations and record revenue from various geographic regions. Looking at each company’s geographical revenue diversification of my holdings provides me with that extra bit of knowledge, visibility and understanding of my portfolio.

Geographical Revenue Diversification of My Holdings

The following table lists details of geographical revenue diversification of my holdings. The data is for each company’s 2015 fiscal year.
Based on the dollar amount invested in each holding, geographical revenue diversification for my portfolio stands at 42% from USA, 32.6% from Canada, 6.5% from Europe, 8.1% from Asia-Pacific and 10.8% Other International regions.

The portfolio has changed a bit since my last update in Dec 2014 and the following chart summarizes the difference in my weighting. The overall diversification is something that I’ve been keeping an eye on over the course of the year. I am making a conscience decision to reduce my home bias (Canada, in my case) and move away from a Canada-heavy portfolio.
Revenue Diversification Changes from 2014 to 2015
Revenue Diversification Changes from 2014 to 2015

I have achieved this by a couple of sales over the course of 2015 and investing more in companies with higher revenue outside Canada. Note that I could still be investing in a company listed on the Canadian exchange, but with an increased presence outside Canada. For e.g., Agrium Inc (AGU) is a Canadian company with only 18% of revenue coming from Canada and has 65% of its revenue generated in US. Similarly, companies such as Algonquin Power & Utilities (AQN.TO) (91% rev from US), Brookfield Infrastructure (BIP.UN.TO) (34% from EU & 37% from Asia-Pacific), Magna International (MG.TO) (29% from US & 34% from EU) provide me with plenty of international exposure.

Summary

Looking at each holdings’ geographical revenue diversification provides me with a better picture of how I am invested in the market. As regular readers are aware, I am a big fan of diversification — not only based on sectors of my holdings, but also geographical diversification of the companies I own. As of my last update in Dec 2014, I realized that I was too heavily invested in Canada, which is a very small market in the world (Canada makes for only 4% of the world market) and wanted to reduce the exposure. I am slowly moving my portfolio shedding some assets and adding others that give me better diversification, so that I am not left vulnerable to problems in one geographic region.

What are your thoughts on my current diversification and the direction I am moving. Share your thoughts below.

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