Just how “made in America” are U.S. stock funds? It turns out there’s not as significantly as apple pie and baseball in some of these portfolios as investors may consider.

When it comes to assessing the asset-allocation qualities of a mutual fund, some details, such as industry capitalization, is not challenging to measure. But when it comes to geographical allocations, investors have been based on a potentially flawed strategy, such as relying on exactly where a organization is headquartered or incorporated or exactly where the stock is listed.

For instance, Aflac (AFL), which is headquartered and listed in the United States and is identified for the Aflac duck, generates 69.eight% of its income in Japan. In the brief term, Aflac shares could fluctuate much more in tandem with the U.S. stock industry. But more than the lengthy term, its company prospects are significantly much more closely linked to Japan.

With the aim of creating a much more correct image of a portfolio’s geographic allocation, Morningstar has rolled out proprietary international geographic segment information that enables investors to assess a fund’s geographic exposure primarily based on the revenues streams of the organizations it holds. A current white paper (readily available to Morningstar Direct consumers) and methodology documents supply much more facts. (Sign up for a cost-free demo of Morningstar Cloud.)

In this short article, we dive into 5 of the most well-liked U.S. index-tracking exchange-traded funds with the aim of highlighting the variations among basing asset allocation on income exposure by area information versus “business country” things such as exactly where a organization is headquartered.

We’ll get started off with

  – supply: Morningstar 

Only 62.five% of income from the organizations in SPY originates in the United States. SPY has about 10.% of income generated from Asia-emerging markets, which contain mainland China and India. Yet another eight.eight% comes from eurozone nations.

  – supply: Morningstar 

The current Morningstar white paper by authors Tom Whitelaw, Alec Lucas, and Robby Greengold noted that geographical income diversity can differ substantially across sectors, which in turn aggregates to the all round fund-level image. For instance, the technologies sector is the most multinational, when utilities, true estate, and monetary solutions are the most domestically focused. And bigger organizations have a tendency to be much more multinational than modest-organization stocks. 

With SPY, 3 of the leading 5 holdings are tech stocks:

   – supply: Morningstar 

That stated, there are nonetheless lots of U.S.-primarily based holdings in SPY that have income streams mostly in the United States, such as the fourth-biggest holding,


  – supply: Morningstar 

Though revenues in monetary-solutions organizations are mainly created domestically,

Citi, when headquartered in the U.S., only has about half of income generated domestically at 47.9%, Japan contributes 20.two%, and Latin America 13.three%. Goldman similarly has 45.four% of income from the U.S., with 15% coming from Australasia, eurozone 12%, and Latin America 11%.

With the Neutral-rated

  – supply: Morningstar 

Though QQQ’s leading holdings are the similar as SPY and VTI–Microsoft, Apple, Amazon, and Facebook–this fund is much more concentrated amongst these stocks. The fund has about 33.three% of assets in these 4 holdings, when they comprise only about one particular tenth of the assets in SPY and VTI. 

Yet another leading QQQ holding, at 1.four% of assets as of Feb. 27, is

  – supply: Morningstar 

Other significant multinational tech positions contain

For Gold-rated

  – supply: Morningstar 

Nevertheless other individuals have bigger overseas sales, such as

Investors have a tendency to view the Russell 2000 as the broad industry benchmark most closely linked to the U.S. economy. Though that is correct compared with the other indexes in this short article, Bronze-rated

  – supply: Morningstar 

Person positions in IWM are modest, with the biggest holding accounting for only .41% of total assets. Consequently, the income exposure image is not as tilted by person names as the other funds. 

Nevertheless, IWM’s two biggest holdings are domestic retailers,