While there is certainly an emerging preference of Australian equities over pooled funds, I have noticed a significant increase in the amount of interest from advisers and investors seeking to access overseas markets directly. And despite popular opinion, it’s not just to buy big brands such as Apple, Google or Nike.
Savvy investors and their advisers are now looking to supplement and diversify their traditional exposure (via managed funds) with single stock ideas and international ETF’s that cover a huge range of strategies from underlying industry sectors, such as US Financial Services. In addition we are seeing more interest in thematic ideas such as wind, water or agriculture, all of which are not available domestically and are unlikely to be in the near future given the small size of our market.
The reasons for investing overseas are well known and understood, and in addition to complete transparency, there are many more opportunities available across a greater number of stocks and sectors.
To put this into perspective in December 2011 there were 201 Stocks that made up the ASX 200 compared to 1655 available in the MSCI world index, according to Bloomberg, IRESS, MPW research. This is only a small sub set of the broader market which consists of circa 2000 shares domestically and 14,000 globally, according to the MSCI ACWI All Cap Index.
In addition to a larger investable universe, currency is also driving demand. For those holding stocks directly and not hedging their position (which can be difficult and a potential deterrent), the high Australian dollar is seen as opportunistic, as a reversion to longer term averages may present an investment opportunity in itself. Either way currency is an important consideration when investing overseas.
With all of this in mind, one might wonder why more investors do not trade and hold more international stock. The answers are, thankfully, largely historic.
Up until recently the cost of trading was prohibitive, account opening and tax complex, while valuable research and information was hard to come by. All these items combined made it difficult for investors, large and small, to build and implement high quality and diversified portfolios across multiple markets.
Like so many industries the internet and advances in technology are largely breaking down these barriers. Investors can now access the world’s largest exchanges at a reasonable cost and have access to research, analytical tools to support them in their investment decisions.
In addition to traditional broking services some Australian platforms and managed account providers will enable direct access for super and non-super investors, and can dramatically simplify the process by offering custodial, settlement, reporting and administrative services.
As with any investment there are risks. Investors and advisers need to carefully consider if investing directly into international markets is for them, or if the plethora of options such as managed funds or ETF’s available domestically will meet their objectives.
Matt Heine joined Netwealth in 2001, focusing on marketing, distribution and branding. He is a member of netwealth’s investment committees. Matt is also Guardian in the No More Practice Investment Series.
