When the Berlin Wall fell, European leaders who wanted to acknowledge America’s role in the expansion of freedom snapped open some frosty cans of Coca-Cola rather than clink glasses of Champagne.
The choice of beverage made sense, since no other product is thought of as more American than Coke. What’s more, those classic cans would have been provided by Coca-Cola Enterprises (CCE), an NYSE-listed company that is a constituent of the S&P 500 Index. Not even the Dow Jones Industrial Average is as deeply rooted in America as the New York Stock Exchange, and the S&P 500 is nearly synonymous with U.S.-domiciled stocks.
And yet Atlanta-based Coca-Cola Enterprises, a fixture of U.S. portfolios, derives virtually all of its more than $20 billion in annual revenue from Europe. The product is American, its headquarters is American and its executives and shareholders are predominantly American, but the bottler’s business is to market soft drinks in Europe.
The case of Coca-Cola Enterprises points to a commonly overlooked flaw in an investment management business that thinks it is properly segregating assets by region, but is doing nothing of the sort. In an interview with AdvisorOne, Sarah Ketterer, CEO and portfolio manager of the boutique international value investment manager Causeway Capital Management, put it this way: “Where a company is listed may have little or nothing to do with where they generate their revenues and profits.” Ketterer used to head Hotchkis and Wiley’s international and global value team before founding Los Angeles-based Causeway 10 years ago.
The classic move that U.S. investors seeking global diversification make is to invest in the EAFE (Europe, Australasia, and Far East) Index, which is designed to invest in developed world markets except for the U.S. and Canada. Yet, “20% of EAFE’s revenues comes from North America,” Ketterer adds.