US vs Interntional stocks - definitional question

[mistymoney]

So this is something I struggle with. What exactly comprises and internation stock exposure? I get that there are european, country-specific, or emerging market type indices, but for the sp500 - with apple, google, tesla, etc. aren't those all international companies?

I guess large cap US stocks seems to be an increasingly meaningless descriptor to me - is anything large cap and not international?

What am I missing?

[Heckler]

https://www.msci.com/documents/10199/822e3d18-16fb-4d23-9295-11bc9e07b8ba

EAFE holds European and Asian companies*.  Like Nestle from Switzerland and Toyota Motor Corp from Japan.  Toyota Motor Corp is also a US company in your line of thinking, but it's not.  It sells in the US through Toyota Motor Sales USA and in Canada as Toyota Canada Inc, but profits end up in Japan.  Akio Toyoda is the president, he is Japanese and HQ is in Aichi, Japan.  Toyota Motor Corp is traded on the Tokyo Stock Exchange.

Tesla is clearly headquartered in Austin, TX.  Thus a US company that does international sales.  Apple is HQ in Cupertino, CA, thus also a US company with international sales.  And they are both traded on the New York Stock Exchange, thus listed in the US stock market.



* Developed Markets countries in the MSCI EAFE Index include: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

[Heckler]

The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on exchanges in the United States. It is one of the most commonly followed equity indices.


The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. According to our Annual Survey of Assets, an
estimated USD 13.5 trillion is indexed or benchmarked to the index, with indexed assets comprising approximately USD 5.4 trillion
of this total (as of Dec. 31, 2020). The index includes 500 leading companies and covers approximately 80% of available market
capitalization.

https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview

[Heckler]

it's a geographical definition, by the stock market the company is listed on. 

[Heckler]

My employer is listed on the Toronto Stock Exchange, also on the Nasdaq.  However, most profits are created in European factories, sold to European customers.   Totally an international company.  (correction, it's not in the FTSE Canadian All Cap either)

And, my personal "International stocks" holding include 30% of VTI (VTSAX), US All-cap.  Interestingly enough, my employer is not listed in VTI, even though we're traded on the Nasdaq.   Must be too small a player there.

[PDXTabs]

My employer is listed on the Toronto Stock Exchange, also on the Nasdaq.  However, most profits are created in European factories, sold to European customers.   Totally an international company, but it's in my Canadian Index fund.
...
Interestingly enough, my employer is not listed in VTI, even though we're traded on the Nasdaq.   Must be too small a player there.

But in that cases like this will MSCI and/or Vanguard put the company in both a US index and a non-US index? Putting one company in both seems like double counting.

[Heckler]

no, it turns out they won't.  I couldn't find my company in VCN (FTSE Canada All Cap) either, but VCN only holds 185 companies, where the FTSE Canada All Cap has 182 companies.  According to Investopedia, the TSX has more than 1500 companies listed.  So, the index is just that - a list of companies that MSCI and FTSE somehow maintain.

Remember, it's Vanguard/Blackrock/etc who buy the company stocks to try to duplicate the MCSI Index (or S&P500, or US Total market).  VCN - example "Seeks to track the performance of the FTSE Canada All Cap Domestic Index to the extent possible and before fees and expenses."



I suspect a lot more truth will be learned on the index creators' websites.

https://www.msci.com/our-solutions/indexes

https://www.ftserussell.com/index/category/equity

[MustacheAndaHalf]

it's a geographical definition, by the stock market the company is listed on.

Not sure where you found that definition, but it's flawed.  AstraZeneca PLC is listed on Nasdaq under stock symbol AZN, while Shell PLC is listed as SHEL on the NYSE.  European companies do not become American companies when they list on American exchanges.

[MustacheAndaHalf]

I guess large cap US stocks seems to be an increasingly meaningless descriptor to me - is anything large cap and not international?

Warren Buffet and John Bogle both felt international exposure was already present in the S&P 500.  For example, Tesla has a large factory in China, and another being built in Germany.  It may have U.S. headquarters, but it's a global brand.

You can look at the correlations between the S&P 500 and other asset classes (2008-now) on Portfolio Visualizer.  Notice that international developed markets (EFA) has the same 0.89 correlation to the S&P 500 as do U.S. small cap stocks (IJR).  When I invested passively, I had an emerging market (EEM) overweight, which shows up as a 0.77 correlation to the S&P 500.
https://www.portfoliovisualizer.com/asset-class-correlations

A question back at you: if you buy Vanguard World (VT), does it matter which companies are U.S. versus international?  Is there an investment decision you will only make after having an accurate defintion of U.S. vs international?

(Practically speaking, holding VTI & VXUS separately saves on expense ratio).

[PDXTabs]

I guess large cap US stocks seems to be an increasingly meaningless descriptor to me - is anything large cap and not international?

Warren Buffet and John Bogle both felt international exposure was already present in the S&P 500.  For example, Tesla has a large factory in China, and another being built in Germany.  It may have U.S. headquarters, but it's a global brand..

That's true, but now Vanguard writes whitepapers about why you should hold some international equities and practices what they preach when constructing target date funds:
https://corporate.vanguard.com/content/dam/corp/research/pdf/Global-equity-investing-The-benefits-of-diversification-and-sizing-your-allocation-US-ISGGEB_042021_Online.pdf