What is regional allocation?

Regional allocation shows how a portfolio is divided across countries and regions — North America, Europe, Japan, emerging markets and so on. Together with sector allocation, it describes where the economic bets of a portfolio really lie. A portfolio can hold a dozen funds and still be mostly a bet on one country.

How the weights are calculated

As with sectors, funds are looked through to the companies they hold, and each company is assigned to a country — usually that of its headquarters or main listing. The weight of region $g$ is:

w_g = \frac{\sum_i V_i \, f_{i,g}}{V_{\text{total}}}

where $V_i$ is the value of holding $i$ and $f_{i,g}$ the share of that holding in region $g$ .

A simple illustration

A portfolio of €50,000 holds €30,000 in an MSCI World ETF, €10,000 in a European equity ETF and €10,000 in German shares. Suppose the world ETF is about 75% North America, 16% Europe and 9% other developed markets:

Region	Calculation	Weight
North America	30,000 × 75%	45.0%
Europe	30,000 × 16% + 10,000 + 10,000	49.6%
Other developed markets	30,000 × 9%	5.4%

The weight of Europe, for example, is:

w_{\text{Europe}} = \frac{4{,}800 + 10{,}000 + 10{,}000}{50{,}000} = 49.6\%

Compared with the world market, this portfolio is heavily over-weight Europe and holds no emerging markets at all.

How to read it

The usual yardstick is the world stock market by market value. In recent years the United States has made up around 60–65% of global stock markets including emerging markets, Europe around 15%, Japan around 5% and emerging markets around 10%.

Deviations are bets. Over-weighting Europe or under-weighting the US is a view on those economies, their currencies and their stock valuations.
Home bias — a strong tilt toward one's own country — is the most common regional deviation.
Region and currency usually go together, but not always: currency-hedged share classes, for instance, remove the currency effect while keeping the regional exposure.

Limits

Headquarters are not revenues. A large German company can earn most of its money abroad, and a US index is exposed to the whole world economy through its multinationals.
Classifications differ. Index providers disagree on some countries; South Korea, for example, counts as developed for some and as emerging for others.

A worked example

Worked through on a sample portfolio. The figures below are that portfolio’s, not yours.

What is my allocation by region?

Here's your allocation by region.

Region	Value (EUR)	Weight (%)
North America	62.542,31 €	45,00%
Europe	32.137,84 €	23,13%
Unclassified	18.184,01 €	13,09%
Crypto	8.847,77 €	6,37%
Asia	8.125,23 €	5,85%
Cash	8.000,00 €	5,76%
Latin America and the Caribbean	668,65 €	0,48%
Africa	284,31 €	0,20%
Oceania	166,74 €	0,12%
Czechia	10,82 €	0,01%

Coverage: 86,91% — this breakdown reflects only the coverage currently available.

See these numbers for your own portfolio

Floreo works out every figure on this page from your own holdings — returns, risk, allocation, currencies — and the assistant explains them the way this page does. Import from your broker, or try it on the sample portfolio first.

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