• The Overall Picture: The WisdomTree Weak Dollar U.S. Equity Index had weighted average revenues from within the U.S. below 40%—in other words, over 60% of the revenue came from abroad. On the other hand, the WisdomTree Strong Dollar U.S. Equity Index had weighted average revenues from within the U.S. of about 96%. That is a significant difference.
• Consistent across All Sectors: It’s also interesting to note that, by design, the weighted average revenues sector by sector are fairly similar. There was no sector in the Weak Dollar U.S. Equity Index with more than 45% revenue exposure to the U.S.—meaning that more than half the revenue in each sector came from abroad. And for the Strong Dollar U.S. Equity Index, the smallest percentage revenue from the U.S. was 92%. These are truly local economy U.S. stocks.
As a result of the selection and weighting process, there is certainly a bias toward various resulting sector tilts.
• Strong Dollar Sector Tilts Lead to 30% Over-weight: In the WisdomTree Strong Dollar U.S. Equity Index, Utilities (+11.42%), Financials (+8.52%), Consumer Discretionary (+7.64%) and Telecommunication Services (+2.53%) exhibit over-weights relative to the S&P 500 sectors that add up to slightly over 30%. The biggest under-weights in this Index are Energy (-7.87%, which was excluded due to its strong negative correlation to the U.S. dollar) and Information Technology (-14.32%), which tends to derive the greatest revenue from abroad.
• Weak Dollar Sector Tilts Lead to a Nearly 20% Over-weight: In the WisdomTree Weak Dollar U.S. Equity Index, Materials (+6.65%), Industrials (+4.69%), Information Technology (+4.56%) and Health Care (3.60%) exhibit a nearly 20% over-weight relative to the S&P 500 sectors. The Strong Dollar U.S. sector over-weights are all essentially under-weights in this Index, with the greatest under-weight being in Financials (-8.89%), which tends to be the most local economy sector.
Company holding information as of 7/8/2015: Mondelez: 0.40% in the WisdomTree Weak Dollar U.S. Equity Index. Philip Morris International: 0.57% in the WisdomTree Weak Dollar U.S. Equity Index. McDonald’s: 0.74% in the WisdomTree Weak Dollar U.S. Equity Index.
1Refers to Tokyo Stock Price Index (TOPIX) universe; source: Bloomberg.
2Universe: S&P 500 Index constituents. Sources: Jack Ciesielski, R.G. Associates, Inc.; Calcbench.
3Sources: Jack Ciesielski, R.G. Associates, Inc.; Calcbench, “Strong Dollar Accounting Implications,” The Analyst’s Accounting Observer.