Dealing With Home Country Bias | ETF Trends

Many investors allocate significant portions of their portfolios to stocks in their home markets while being under-allocated to international equities. In the U.S., that usually means large allocations to domestic large-cap stocks while missing out on opportunities in ex-US developed markets.

The SPDR Portfolio Developed World ex-US ETF (NYSEARCA: SPDW) is an example of an exchange traded fund that helps investors boost international exposure at a modest cost. The $4.63 billion SPDW tracks the S&P Developed Ex-U.S. BMI Index.

“Studies demonstrate that home-country bias is prevalent among US investors,” said State Street in a recent note. “According to the International Monetary Fund’s (IMF’s) Coordinated Portfolio Investment Survey, US investors allocate over 70% of their equity exposure to US securities. However, measuring on the basis of market capitalization of equity, the US represents just 53% of the market cap weighted MSCI ACWI Index—a broad representation of 47 investable countries.”

SPDW charges just 0.04% per year, or $4 on a $10,000 investment, making it one of the cheapest international equity ETFs available to U.S. investors.


“Some have argued that investing in US equities can still provide international exposure through globally derived US company revenues,” according to State Street. “However, when we look at a geographic breakdown of revenue sources over the past 12 months, over 60% of S&P 500® Index constituent’s revenue can be traced to the US. This reveals that large US company revenue isn’t as geographically diverse as some might think, and as shown below, the revenue profile of US firms drastically differs from the makeup of economic growth around the world.”

SPDW provides exposure to 25 countries, nearly all of which are developed markets. Japan, the U.K. and Canada combine for about 46% of the ETF’s geographic exposure. Fifteen of the countries represented in SPDW are European economies. There are other reasons to consider SPDW.

“The average length of time that international developed outperforms the US is 12 months, while the average length of emerging market outperformance is 15 months,” said State Street. “The more interesting aspect is when analyzing the longest duration of outperformance. For international developed it is 58 months, and for EM it is 64 months.”

SPDW is up nearly 11% year-to-date.

For more information on the markets, visit our current affairs category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.