Future Focus: Your Aussie shares ETF isn’t very Aussie
Is your exposure actually a bet on Australia?
Mentioned: BHP Group Ltd (BHP), CSL Ltd (CSL), Goodman Group (GMG), Vanguard Australian Shares ETF (VAS), Vanguard MSCI Intl ETF (VGS)
People can become so closely associated with an idea that it can become difficult to separate them. In John Bogle’s case, the Vanguard founder has become synonymous with passive investing.
Bogle’ views about investing were more nuanced. For instance, he was sceptical of the need for US investors to add global holdings to a US share portfolio. He believed it was enough to have domestic equity and fixed income exposure, as the largest domestic companies were multinational and provided global exposure.
Could you transpose this concept for Aussies and is an Australian shares ETF enough? Some Australian investors may agree - Vanguard Australian Shares VAS is the most popular ETF in the country. Others clearly disagree with Vanguard International Shares ETF VGS taking the second spot.
Bogle argued that large listed companies were already global businesses. In a 2018 interview with Morningstar’s Christine Benz he pointed out that half of the revenue and earnings of US corporations came from abroad.
His conclusion was straightforward: investors holding a diversified portfolio of US companies were already receiving substantial international exposure. It made sense to look at the source of revenue as a proxy for geographic exposure rather than where the company is domiciled. Looking at the revenue earned globally, Bogle concluded that US investors didn’t necessarily need to add international shares to their portfolios. This was not a house view – he was a contrarian even within Vanguard.
It provides an interesting framework for thinking about the Australian market. If investors receive international exposure through the companies they own, do they need an international sleeve?
The Australian version of the Bogle argument
The Australian market provides some support for Bogle’s basic premise. I’ve taken a look at the weighted revenue exposure of the ASX20 – the top 20 companies by market capitalisation listed on the ASX. This represents around 62% of the overall ASX200 index. Australia and New Zealand represent around 58% of the revenue, in line with previous research from Morningstar that shows that 58% of the full holdings of the ASX200’s revenue is from Australia and New Zealand. The remaining 42% is derived overseas.
Figure: Australian exposure by revenue. Source: Company disclosures and author’s analysis. The 20 companies represent 62.52% of the ASX 200. Geographic revenue is weighted by each company’s ASX 200 index weighting. Those missing classification are Rest of Asia (light blue) and South Korea (red) in the diagram.
The ASX 200 isn’t as Australian as it looks
The Australian sharemarket is unusual in its composition. Some of its largest companies are deeply tied to the domestic economy. The major banks, supermarkets, telecommunications companies and infrastructure businesses generate much of their revenue locally.
Sitting alongside them are companies that can be classified as global businesses.
BHP Ltd. BHP is perhaps the clearest example. It is one of the largest companies in the ASX 200, with an index weighting of around 11.6% at 9 September 2026. Yet, only around 4.9% of its revenue is attributed to Australia and New Zealand - more than half is attributed to China.
CSL Limited CSL is another example of globally focused local company. Only around 6% of its revenue comes from Australia and New Zealand, while a much larger proportion comes from the Americas and Europe. Macquarie is similarly global, with less than 30% of revenue attributed to Australia and New Zealand.
Goodman Group GMG has a substantial international footprint across Europe and the Americas, while Rio Tinto, QBE, Northern Star and Fortescue also generate significant revenue outside Australia.
They may be listed on the ASX and headquartered in Australia, but these are not companies dependent on the local economy.
The biggest international revenue source is China
The largest single source of revenue for the largest Australian companies is China with around 14.7% of the ASX20’s weighted revenue. BHP’s large share of that total revenue means that financial performance is heavily influenced by Chinese demand for commodities.
The same principle applies to the US. You don’t need to own an American company directly to have exposure to the American economy. CSL, Macquarie, Goodman, QBE and a number of other Australian-listed companies have substantial businesses in the US.
The important question for investors is if this international revenue translates to international diversification as Bogle pontificated?
International revenue exposure isn’t the same as international diversification
There is a difference between international economic exposure and international equity diversification.
Back to BHP. It provides exposure to global commodity demand, but it is not a Chinese mining company. CSL- substantial exposure to the US healthcare market, but it is not a US healthcare company.
Diversification isn’t only about the location of a company’s customers. It is about diversifying to reduce risk from a number of factors, including company, industry, market, currency, regulatory and economic specific risks.
An Australian investor who holds the ASX 200 is still heavily exposed to the following underlying characteristics of the Australian sharemarket.
The sector concentration problem
The Australian market is especially concentrated. Financials and resources account for a large proportion of the ASX 200. An investor can receive considerable international revenue exposure without achieving the same diversification benefit that comes from owning a broad global equity portfolio.
BHP’s exposure to China, for example, is very different from owning a diversified portfolio of Chinese companies. The former is primarily commodity exposure while the latter could include technology, consumer businesses, financials, healthcare and industrial companies.
The story isn’t just about diversification but getting exposure to a variety of drivers of business performance.
The ASX200 has meaningfully underperformed international markets in the recent past, with international indexes driven by strong performance in the United States. Investors who have missed this exposure, missed out on the stellar returns, buoyed by technology companies.
Growth of $100: S&P/ASX 200 vs S&P 500 vs MSCI ACWI (2016–2025)
Source: Morningstar Direct
The gap is stark: $100 in the S&P 500 grew to roughly $396, MSCI ACWI (global stocks) reached about $303, while the ASX 200 grew to about $241. US equities returned nearly 2.9x what Australian equities did over the decade, driven heavily by mega-cap tech (Mag 7/AI-related companies).
This performance is not guaranteed to continue, and the situation could be reversed with Australian equity outperformance. However, it is a demonstration of how international exposure is only achieved to a limited degree with revenue diversification.
Multinationals are not a perfect substitute for international shares.
What does this mean for an Australian investor?
The answer depends on what you’re trying to achieve. If the goal is to get some exposure to overseas economies, an ASX 200 portfolio already does considerably more than its name suggests.
If the goal is to diversify away from the risks of the Australian market, adding international equities is sensible. If the goal is to get exposure to businesses, sectors and industries that aren’t available in the Australian market, an international sleeve also is sensible.
The Australian sharemarket may be more global than it looks, but it is only a narrow slice of the global investment opportunity set. Bogle’s thesis may work in the larger US market but falls short in Australia.
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