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A New Lens for Measuring Global Diversification (Part 1)

You might be better-diversified than you think.

Ben Johnson 17 October, 2019 | 14:40

Diversification is the only free lunch in investing. Spreading bets across securities, sectors, and geographies is an efficient way to reduce risk. But traditional means of measuring these dimensions of diversification have limitations.

Take Amazon.com (AMZN) for example. The online retail giant belongs to the Internet and direct marketing retail subindustry within the consumer discretionary sector in the Global Industry Classification System. But in the second quarter of 2019, nearly 12% of its sales and just over half its operating income came from Amazon Web Services, its cloud computing offering. And though the company is domiciled and listed in the United States, 28% of its second-quarter 2019 sales came from its international division. Clearly, Amazon is more than a U.S. consumer discretionary firm.

As global markets have evolved, the tools that investors use to understand them have, too. In this article, I'll take a closer look at one enhancement to this tool kit: Morningstar's Revenue Exposure by Region data.

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About Author

Ben Johnson  Ben Johnson, CFA is the Director of Passive Fund Research with Morningstar.

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