Morningstar reframes geographic diversification by shifting the lens from company domicile to where revenues are actually generated, arguing that traditional country-based allocation can misrepresent real economic exposure. The paper highlights how emerging markets like China jump from 3.5% to 10.6% exposure when measured by revenue, challenging conventional diversification assumptions.
A New Perspective on Geographical Diversification: Revenue Exposure by Region
Morningstar
Alec Lucas
Research
17 Pages
Key Takeaways
Revenue Vs Domicile Gap: China’s weight rises from 3.5% to 10.6% using revenue exposure, a 3x increase that reshapes perceived global market importance.
Mega Caps More Global: S&P 100 firms generate about 50%+ of revenue outside the U.S., versus 62% domestic revenue for the S&P 500, highlighting scale-driven diversification differences.
Sector Exposure Skew: Financials derive roughly 70%–85% of revenue domestically, while growth sectors show materially lower U.S. exposure, impacting portfolio diversification outcomes.
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