Revenue Exposure: A New Lens for Evaluating Fund Risk and Opportunities

In a recent analysis, Gregg Wolper from Morningstar introduces the concept of revenue exposure as a valuable metric for assessing fund risk and opportunity on a global scale. While traditional domicile-based classifications remain relevant, revenue exposure offers additional insights that can enhance investors' understanding of their portfolios [024b6e02]. According to Morningstar data, there are significant differences in US revenue exposure between US-focused and foreign funds. For instance, US large-blend funds average 59% US revenue exposure, whereas foreign large-blend funds only average 23% [024b6e02]. This disparity is even more pronounced in small and mid-cap funds, with US small-cap funds showing 83% US exposure compared to just 14% for foreign small/mid-blend funds [024b6e02]. Examples of this trend include Fidelity Magellan (FMAGX), which has 58% US revenue exposure, and Fidelity International Capital Appreciation (FIVFX), with 35% [024b6e02].

Wolper emphasizes that while revenue exposure can provide additional insights for investors, it should not replace traditional methods of analysis. Currency movements and geopolitical events further underscore the importance of domicile in assessing fund risk [024b6e02]. As investors navigate an increasingly complex global landscape, understanding revenue exposure alongside traditional metrics may offer a more comprehensive view of potential risks and opportunities in their investment strategies [024b6e02].