The second quarter earnings season revealed a number of large-cap U.S. companies with big international footprints generated higher earnings growth. Exchange traded fund investors can also capitalize on this trend through a targeted smart beta strategy.
The global economy is picking up pace, supporting the outlook for U.S. multinational companies.
“Signs of enhanced momentum in the global economy have recently emerged. Global GDP growth has picked up to an annualised rate of over 3¼ percent since the middle of 2016, with a rebound in industrial production, global trade and investment,” according to the OECD Global Economic Outlook.
Companies in the S&P 500 with higher global exposure were expected to benefit from a weaker U.S. dollar and higher global GDP growth, writes John Butters, Senior Earnings Analyst for FactSet. With 90% of S&P 500 companies reporting earnings, those that have a higher global revenue exposure outperformed S&P 500 companies with lower global revenue in terms of earnings growth and sales growth for the second quarter.
“The blended earnings growth rate for the S&P 500 for Q2 2017 is 10.2%. For companies that generate more than 50% of sales inside the U.S., the blended earnings growth rate is 8.5%. For companies that generate less than 50% of sales inside the U.S., the blended earnings growth rate is 14.0%,” Butters said.
On a sector level, the technology and energy sectors were the biggest contributors to earnings and revenue growth in the second quarter for companies with less than 50% of sales in the domestic economy.
Over 50% of revenues of companies in the S&P 500 come from outside the U.S. ETF investors who want to capitalize on the ongoing growth story in the global markets may look to the targeted WisdomTree U.S. Export and Multinational Fund (NYSEArca: WEXP).
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WEXP tracks U.S. based companies that derives less than 60% of their revenue from the United States and the underlying index also employs a modified earnings stream weighting process that adjusts the earnings for each company based on revenue from outside the U.S.
The portfolio includes a hefty 25.7% tilt toward information technology, along with 16.8% health care and 15.5% consumer staples. Top holdings include Johnson & Johnson 5.0%, Citigroup 4.7% and Philip Morris International 4.0%.
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