Mononationals: The Diversification Benefits of Investing in Companies with No Foreign Sales

Cormac Mullen and Jenny Berrill

Financial Analysts Journal, 2017, vol. 73, issue 2, 116-132

Abstract: Few papers have focused on the diversification benefits of companies with domestic sales only, or mononationals. We compare the international diversification benefits of equity portfolios of various multinational classifications. We find that multinationality has a significant impact on diversification benefits, with foreign “domestic” stocks offering the most benefits and foreign “global” stocks the least, and that investing in stocks with low sales in the investor’s home region leads to higher benefits. For portfolio managers, we suggest that a portfolio of mononationals offers the potential for greater benefits than a portfolio of multinationals. Our results are strongest for US, eurozone, UK, and Japanese investors.A practitioner's perspective on this article is provided in the In Practice piece "Rediscovering Diversification in International Equities" by Phil Davis, online 17 April 2017. Disclosure:The authors report no conflict of interest. Editor’s Notes: This article was externally reviewed using our double-blind peer-review process. When the article was accepted for publication, the authors thanked the reviewers in their acknowledgments. Patrick Savaria, CFA, was one of the reviewers for this article. Submitted 17 February 2016 Accepted 24 November 2016 by Stephen J. Brown

Date: 2017
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DOI: 10.2469/faj.v73.n2.3

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