Reuters Money

If it’s not Tunisia, it’s Egypt; if it’s not Egypt, it’s Yemen.

Political turmoil abounds on our TV screens. But hands up: Who adjusted portfolio positions before the unrest in each country began?

Probably very few. You may or may not have been burned as a result, but one thing’s for sure: managing political risk in your portfolio is a must. Here’s a primer.

Use all tools available
First: do your research before deciding where to invest. Find out as much as possible about the regions and countries you are interested in. If you’re investing in a mutual fund or exchange-traded fund (ETF), don’t just stop at the headline name.

For example, if you pick the Market Vectors-Africa Index ETF, you may assume the bulk of the assets will be located in more stable countries, such as South Africa. You always have to drill deeper. Among its largest holdings is Egypt’s Orascom, while its top holding is British oil and gas company Tullow Oil, which has major investments in Uganda.

So what’s the best way to assess your political risk? There is, unfortunately, no panacea. If you have invested in a fund, ask for as much information as possible. Often fund managers provide reports that give a good overview, though they are not always up-to-the minute.

Then there’s AON’s comprehensive political risk map, which color codes 211 countries from low to very high risk. The downside is that it, too, can be slow to turn with the times. Its map for 2011 shows Egypt as medium risk. Rating agencies provide ongoing updates and analysis, though not all are accessible for free online.

The Economist’s country briefings are another good source, but for the latest information, a top tip is to glean information from insurance companies that deal in executive risk management. There’s nothing like the thought of a CEO trapped in a tight spot to concentrate the minds on knowing the volatility of a country or region.

Don’t be caught naked
Oh, the lure of the high return. In general, the riskier the country, the better the potential upside. But be wary of crashing to the ground. If you’re a more conservative investor, stick to low- and medium-risk countries where you can still get adequate returns.

Follow that investment golden rule not to put all your eggs in one basket. Spread your investments among regions and countries and limit exposure to political instability. The same goes for currencies and sectors. For example, energy and commodities typically have higher volatility.

“The goal is to keep exposure to a level you’re comfortable with,” says James Holtzman, a financial adviser and shareholder at Legend Financial Advisors.

Also remember the red flags emerge at different times, depending on the country. “China has so much information, you’d have enough lead time to know what to do,” says financial adviser Doug Kinsey, a partner at Artifex Financial Group. “Whereas in Egypt people really probably didn’t know.”

Know your companies
For companies in your portfolio, look closely. Yum Brands owns such American fast-food stalwarts as KFC, Pizza Hut and Taco Bell. A true American investment, right?

Wrong. A third of its revenues now stem from China, meaning your investment is tied to the strength of the Chinese economy, particularly rising inflation. Avon is another one. It has massive exposure to Latin American risk, where sales outstrip those in North America.

“You’ve got to understand the percentage of possible revenues from overseas,” says Holtzman. “Just because the bricks and mortar headquarters are in the U.S., it doesn’t mean most of a company’s revenues are.”

In fact, the average percentage of international revenue for S&P 500 companies  was 29.5 percent in 2009, according to data from Bespoke Investments Group.

When a crisis hits, keep a clear head
So you’ve assessed the political risk, invested appropriately, and think you’re sure to avoid any nasties.

Unfortunately, as Egypt shows, planning doesn’t always cover everything. When political turmoil strikes, and you watch in horror as your investment plummets, the instinct is often to sell.

But keep a clear head. The chances are, if you’re an everyday investor, by the time there’s blood on the streets, you’ll already have absorbed losses.

Take a long-term view and keep to a buy-and-hold strategy. “We would recommend hanging in there,” says Holtzman. He cites the example of Greece, which recovered after being rocked by debt crisis turmoil last year.

And if ever there was an example of how every political situation is different, imagine if you’d sold your Thailand ETF in December 2008 as unrest gripped the country. It’s up 300 percent since that nadir — a lesson in managing political risk if ever there was one.