Financial Analysts Journal | A Publication of CFA Institute 116 © 2017 CFA Institute. All rights reserved. Second Quarter 2017 CE Credits: 1 Research Mononationals: The Diversification Benefits of Investing in Companies with No Foreign Sales Cormac Mullen and Jenny Berrill Cormac Mullen is a PhD candidate in finance, School of Business, Trinity College, Dublin. Jenny Berrill is assistant professor of finance, School of Business, Trinity College, Dublin. I n recent years, researchers have documented a decrease in the benefits of internaonal equity porolio diversificaon, par- cularly for developed-market stocks, as the world market has become more integrated and financial markets more globalized (Kalra, Stoichev, and Sundaram 2004; Chiou 2008; Quinn and Voth 2008; Beine, Cosma, and Vermeulen 2010; Christoffersen, Errunza, Jacobs, and Langlois 2012; Lehkonen and Heimonen 2014; Miralles- Marcelo, Miralles-Quirós, and Miralles-Quirós 2015). Academics have suggested that equity investors seeking internaonal diver- sificaon benefits consider emerging markets (Christoffersen et al. 2012; Graham, Kiviaho, and Nikkinen 2012; Harvey 2012; Lehkonen and Heimonen 2014; Yarovaya and Lau 2016), froner markets (Berger, Pukthuanthong, and Yang 2011; Sukumaran, Gupta, and Jithendranathan 2015), or various equity-linked products (Kabir, Hassan, and Maroney 2011; Miralles-Marcelo et al. 2015; O’Hagan-Luff and Berrill 2015). Many fund managers, however, are constrained by their funds’ investment mandates and are restricted to invesng in developed-market equies only. Thus, they are excluded from the diversificaon benefits available from these more “exoc” securies. The literature on the benefits of internaonal diversificaon emerged at a me when a foreign stock was more likely to have sales exposure completely foreign to the investor and was less likely to be a foreign mulnaonal company (Grubel 1968; Levy and Sarnat 1970; Solnik 1974). For example, in 1995, a US investor invested in Vodafone, a UK-based telecommunicaons company with 99.7% of its sales in the United Kingdom. In 2012, the same investor held shares in the Vodafone conglomerate, which had just Few papers have focused on the diversificaon benefits of com- panies with domesc sales only, or mononaonals. We compare the internaonal diversificaon benefits of equity porolios of various mulnaonal classifica- ons. We find that mulnaon- ality has a significant impact on diversificaon benefits, with foreign “domesc” stocks offer - ing the most benefits and foreign “global” stocks the least, and that invesng in stocks with low sales in the investor’s home region leads to higher benefits. For port - folio managers, we suggest that a porolio of mononaonals offers the potenal for greater benefits than a porolio of mulnaon- als. Our results are strongest for US, eurozone, UK, and Japanese investors. Disclosure: The authors report no conflicts of interest. The authors thank the editors, one anonymous reviewer, and Patrick Savaria, CFA, for their insighul comments, which greatly improved the arcle. For Personal Use Only. Not for Distribution.