Life after the CFA® Exams: Applying Your Skills in the Real World

It may help to know that the skills you learn while preparing for the CFA exams will be useful later in your financial career. While the CFA material has changed over the years and will continue to be updated after your final exam, your analytical skills will endure. Don’t be afraid to use them to question the status quo.  Here are some real-world applications of CFA exam material:

Level III Reading 20: Market Indexes and Benchmarks—Country Exposure via Index Funds

The rise of specific region and country ETFs have increased the conversations about allocating assets to these ETFs to gain exposure in a specific geographic area.  However, based on S&P Dow Jones Indices’ 2016 annual report, over 40% of the revenues from S&P 500 companies are sourced overseas. Given this large overseas exposure, investing in the US-based S&P 500 index fund may provide different risk exposures than expected. This is why it is important to look past where a company is domiciled and instead understand where the company does business.

Level I Reading 24: Understanding Income Statements; Level III Reading 18: Multinational Operations—Breakdown of Apple’s Revenues by Geography

Apple, one of the largest companies in the S&P 500 index, generated 40% of its 2018 first-quarter revenues from  North and South America, and another 20% came from Greater China (China, Hong Kong, Macau, and Taiwan). With the majority of the revenues coming from outside of the United States, Apple’s revenues are truly global and, as a result, come with additional complexities—currency exposure, monetary policies of foreign central banks, and international trade agreements can all impact the bottom line and affect Apple’s stock price.

Level I Reading 20: Currency Exchange Rates; Level III Reading 27: Risk Management—Company’s Exposure—Aflac’s Business in Japan

While one could make a case that Apple has less risk because its revenues are spread globally, there are some US companies that have a high exposure to a single foreign country. Aflac started in 1955 as a US-only company headquartered in Columbus, Georgia, and it expanded globally in 1974. It’s one of the Dividend Aristocrats, a classification of US-based companies that have raised their dividends for at least 25 consecutive years. Aflac has been growing its stock dividend for 34 consecutive years and counting. While many US investors know the Aflac duck from the company's entertaining commercials, they may not realize that Japan represents about 70% of Aflac’s pre-tax operating earnings. So while the US business is meaningful, investors should be mindful of the business segment in Japan and the JPY's impact on the financials.  

Level III Reading 17: Principles of Asset Allocation—Samsung Included in Emerging Market Index

Looking to increase the portfolio’s emerging-market exposure? You may not get as much emerging-market exposure as you think by adding an index fund. For example, Samsung is one of the top holdings in many emerging-markets index funds, but only 10–15% of its revenues are sourced from its domestic country, South Korea. Over 50% of its revenues are sourced from America and Europe. Samsung may be an exception to the rule among emerging-market index constituents, but it’s always important to understand and know the underlying holdings in an investment.

Level I Reading 23: Financial Reporting Standards—No Standardized Method on Reporting Geographic Revenue

As you can see, there isn’t a standard on how to classify revenue by country or region. Aflac separates its US and Japan business units whereas Apple lumps the Americas together, including all of North and South America. The data from S&P Dow Jones Indices show 43.2% foreign-sourced sales for the S&P 500 were sourced from only about half of the companies (257 to be exact). Because of a lack of data and variances in reporting foreign sales, there isn’t an easy way to screen a company’s revenue by country; it must be done manually.  The sales data by geography can typically be found in the company’s financial statements, investor presentations, or conference call transcripts. Equity analysts that cover a company will often ask about certain business units or regions to better understand the company's long-term growth strategy and to track the progress each quarter. Yet there are still some companies that choose not to disclose a geographic breakdown of their revenue or earnings, as it may reveal too much information to their competitors.

Level I Reading 30: Income Taxes—More Complications

To complicate things further, about 5% of the S&P 500 companies are headquartered outside of the United States. One of the requirements to be a constituent in the S&P 500 is to be a US company, but the methodology provides exceptions to this rule. One of those exceptions is granted when a company is headquartered in a foreign country specifically for tax purposes. A few companies that fall under this provision and are now headquartered in Ireland for that country’s favorable tax treatment are Accenture, Medtronic, and (more recently) Johnson Controls. The benefits of the tax-inversion strategy reduced with the recent decrease in the United States corporate tax rate, but there can be other business reasons for companies to move their headquarters outside of the United States.

Level I Reading 41: Portfolio Risk and Return;  Level II Reading 9: Correlation and Regression; Level III Reading 25: Equity Portfolio Management—Putting It All Together

There are diversification benefits of adding international stocks to a US stock portfolio, but it appears to be less beneficial today than in the past as correlation coefficients have increased among the broad-based US and international equity asset classes. This may be a result of larger companies becoming more global and having a greater influence on the market-cap-weighted indices. Perhaps a new methodology focusing on geographic revenues will emerge, and then we could determine whether the correlation coefficients would be materially different from the current methods. But for that to happen, more companies would need to provide greater detailed accounting at the country level.

Until then, please keep in mind that you are investing in companies, not countries.

About the Author

Michael E. DeMassa, CFA, CFP® is the founder and principal of Forza Wealth Management. His diverse work experience of more than 18 years at a major brokerage firm, a local broker/dealer, and a global trust company inspired him to start his own investment firm in 2015 to provide independent objective advice to his clients.  He is a graduate of Massachusetts Institute of Technology. He specializes in locally managed custom stock, bond, and ETF portfolios to help his clients achieve their retirement and income goals. Please visit: for more info or connect with Michael at

Michael DeMassa