You forgot to take into consideration that those companies in S&P 500, while based in US are global companies: Amazon, Tesla, Google, Microsoft, Boeing, Pfizer, just to name a few. These companies are so diversified that they have huge influence in most of the world's economy. This makes S&P500 more diversified than your article leads it to seem. What if the US goes through a period of instability? The companies will still be doing fine as they operate in the rest of the world rather than just in the US market. What if they close off the US stock market to the rest of the world? Even more reason to buy now. Roughly 40% of S&P 500 companies' revenues are earned outside US. You're focusing on where the companies are listed, rather than where the companies operate.
I understand where you're coming from, and you're right in noting that many of the S&P 500 companies operate on a global scale and generate a significant portion of their revenues from markets outside of the US.
However, there are a few nuances to consider:
Concentration Risk Still Exists: While these companies are global, their stock prices are still heavily influenced by US-centric events due to their listings on the US stock exchange. A policy change, interest rate decision by the Federal Reserve, or any US-centric economic downturn can significantly affect the S&P 500 index, regardless of where these companies earn their revenue.
Operational Diversification ≠ Portfolio Diversification: Even if we concede that the S&P 500 offers operational diversification due to the global reach of its companies, that doesn't equate to true portfolio diversification. An investor or SWF should diversify across asset classes, industries, and geographies to ensure risk distribution. Relying solely on the S&P 500, no matter how globally its companies operate, doesn't offer the kind of diversification that large institutional investors seek.
Domestic Bias of Operations: While it's true that a significant portion of the revenue of S&P 500 companies is earned outside the US, many of these companies still have significant domestic operations and infrastructure. An instability event in the US would not leave them unaffected.
Regulatory and Access Concerns: Even if the companies operate globally, a hypothetical closure or restriction of the US stock market would pose significant challenges for investors. Being unable to access or offload significant equity positions due to regulatory changes can be detrimental, regardless of where the companies operate. If this sounds unlikely, consider that in recent times there were talks to delist Chinese companies from the US stock market.
True diversification for Sovereign Wealth Funds requires a more comprehensive approach to asset allocation.
You forgot to take into consideration that those companies in S&P 500, while based in US are global companies: Amazon, Tesla, Google, Microsoft, Boeing, Pfizer, just to name a few. These companies are so diversified that they have huge influence in most of the world's economy. This makes S&P500 more diversified than your article leads it to seem. What if the US goes through a period of instability? The companies will still be doing fine as they operate in the rest of the world rather than just in the US market. What if they close off the US stock market to the rest of the world? Even more reason to buy now. Roughly 40% of S&P 500 companies' revenues are earned outside US. You're focusing on where the companies are listed, rather than where the companies operate.
Thank you for sharing your perspective, Steve.
I understand where you're coming from, and you're right in noting that many of the S&P 500 companies operate on a global scale and generate a significant portion of their revenues from markets outside of the US.
However, there are a few nuances to consider:
Concentration Risk Still Exists: While these companies are global, their stock prices are still heavily influenced by US-centric events due to their listings on the US stock exchange. A policy change, interest rate decision by the Federal Reserve, or any US-centric economic downturn can significantly affect the S&P 500 index, regardless of where these companies earn their revenue.
Operational Diversification ≠ Portfolio Diversification: Even if we concede that the S&P 500 offers operational diversification due to the global reach of its companies, that doesn't equate to true portfolio diversification. An investor or SWF should diversify across asset classes, industries, and geographies to ensure risk distribution. Relying solely on the S&P 500, no matter how globally its companies operate, doesn't offer the kind of diversification that large institutional investors seek.
Domestic Bias of Operations: While it's true that a significant portion of the revenue of S&P 500 companies is earned outside the US, many of these companies still have significant domestic operations and infrastructure. An instability event in the US would not leave them unaffected.
Regulatory and Access Concerns: Even if the companies operate globally, a hypothetical closure or restriction of the US stock market would pose significant challenges for investors. Being unable to access or offload significant equity positions due to regulatory changes can be detrimental, regardless of where the companies operate. If this sounds unlikely, consider that in recent times there were talks to delist Chinese companies from the US stock market.
True diversification for Sovereign Wealth Funds requires a more comprehensive approach to asset allocation.