News & Views

Investing – Blurred Lines

‘In this world, nothing is certain except death and taxes’

Benjamin Franklin

As humans, we like certainties.  Unfortunately, in investing there are few.  Without the benefit of hindsight, there is no such thing as a perfect investment portfolio –– and building a sensible solution requires digesting as much evidence as one can reap, before constructing a portfolio which gives an investor the best chance of achieving their financial goals, within their constraints.

Ultimately, an element of preference is required to arrive at a solution one feels comfortable enough to invest in and stick with.

These preferences can lead to greater or lower exposures to emerging markets, smaller and value companies, commercial property, or a bias towards an investor’s home market, to name a few.

Again, there are no correct decisions between these choices, but investor preference – considering the evidence – will determine the chosen solution.

Investors will often use pie charts to present, for example, exposures to different sectors, geographies, currencies, or equities, using distinct colours to separate each segment.

In reality, the lines are blurred.  The figure below illustrates the revenue exposure generated by the underlying equities/shares listed in the corresponding market. 

One will notice that a significant proportion of each market’s revenues is generated overseas.

Given a company’s share price is the aggregate investor’s view on the share of a company’s future cashflows, discounted back to today, these revenues generated overseas are consequential to investors in these markets.

Figure 1: Revenue exposure by country for each region’s equity market


Data source: Morningstar Direct © All rights reserved. Funds used to reflect each market: UK, Vanguard FTSE UK All Share; Australia, iShares Core S&P/ASX 200 ETF; US, iShares Core S&P 500 ETF. Data as at 30/06/2023.

The implication for investors that have diversified their portfolios overseas is that the true underlying country (or currency) exposure is – probably – unmeasurable and would require understanding the hedging policies within individual companies.

The country exposure within a portfolio is probably more reasonably presented in a chart more like the one below.

Figure 2: Illustrative blurred lines that exist between true underlying portfolio exposures


For illustrative purposes only.

Figure 3: Market capitalisation and revenue exposure of global equity markets

Data source: Morningstar Direct © All rights reserved. Fund used to reflect world market: Vanguard FTSE Gbl All Cap Index Fund. Data as at 30/06/2023

Understanding what you can and can’t control when constructing investment portfolios is a useful starting point.

Breaking the construction process down into simple and manageable steps, knowing and accepting one’s preferences, and understanding that no perfect solution exists, can lead to a better long-term solution for an investor.

Sticking to some key guiding principles – which are grounded in evidence and logic – gives investors a solid foundation on which to build a sensible investment solution.  Visit our recent note on ‘5 Key Insights to Build a Sensible Investment Solution

For more information please get in touch with the Wells Gibson team.

Risk warnings

This article is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Reference to specific products is made only to help make educational points. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.