Jewels in hunt for distant dollars
Published in the Herald Sun,February 2014 by Karina Barrymore
International shares are firmly back on the radar, so where should Aussies be rolling the dice?
International assets are set to be the jewel in the investment crown this year, as more people look beyond uncertain Australian markets to the bigger global picture.
Overseas shares have already given Aussie retirement funds the biggest annual return compared with all other sectors, with SuperRatings reporting 36 per cent growth for international shares during the year to December 2013. And for many investors, that result wasn’t just a one-year wonder. International shares have been consistent strong performers, barring the financial crisis.
However, the year ahead is tipped to be even bigger for offshore investments, especially as the more traditional trading countries are set to make a starring comeback.
“The global economy is expected to generate its fastest growth since 2010 this year, lead by the “old world” economies like the US, the UK and Japan,’’ UBS head of investment strategy Tracey McNaughton says.
In contrast, Australian markets are looking less likely to perform strongly.
“For Australia, while not completely stuck in the mud, the outlook for growth is soggy as the hole left by the decline in mining activity is only partially filled with housing, exports and a recovery in consumer spending,’’ McNaughton says.
EYES ON AMERICA
With ongoing uncertainty at home, more Australians than ever are looking offshore.
A recent survey found demand for international assets has reached a six-month peak as many savers and investors start to gear up their activity after the summer break.
Certitude Global Investing runs an index that measures Australia’s demand for global investments. At the end of January, it jumped almost 3 per cent, with the US the No.1 destination for a big chunk of Aussie cash.
The index found 25 per cent of active investors plan to increase their international share holdings within the next 30 days, while almost a further 25 per cent plan to buy within three months.
However, almost one-quarter of them say that a lack of knowledge about international shares is holding them back.
“It’s promising to see that Australian investors are looking beyond our shores,” Certitude chief executive Craig Mowll says.
“The US and North America increased in popularity by 8 percentage points in January, the upswing firmly positions this region as the No.1 choice for those looking to invest offshore – 52 per cent name it as their preferred region,’’ he says.
A GLOBAL MINNOW
Wealth Within global market strategist David Thang says that Australian shares make up less than 3 per cent of the global market, which means sticking to local investments can be too narrow for some investors. Overseas markets offer more diversification, he says, although they also come with greater risk.
“Investors also need to consider the issue of currency risk. Unless an investor understands how to offset their risk of currency fluctuations, such an investment ought to be considered high risk and not for the average investor,’’ Thang says.
Prescott Securities equities specialist Travis Adams says after a slowdown following the global financial crisis, international shares are “firmly back on the radar”.
“While managed funds have traditionally been the most popular vehicle for international shares exposure, there are now more opportunities available for direct investment in individual stocks,” Adams says.
He recommends most of his clients hold about 10 per cent of their portfolio in global shares.
“Australian investors, in general, maintain a natural bias to the local sharemarket which is not too dissimilar to investors in the US and UK,” Adams says.
“A few years ago, Australians were not highly rewarded for investing overseas.
“In addition to the impact of the GFC, the rising dollar offset much of the gains.
“However, given the relatively subdued national economic growth outlook, a higher offshore exposure now presents a more compelling case. Investing offshore can provide exposure to brands with products consumed, applied, watched and enjoyed by Australians every day.”
Major global companies tend to have bigger share prices and be focused more on growth, rather than paying big dividends like many Aussie companies do.
Prescott Securities says the most popular global shares include Apple, which has a $US544 share price and 2.2 per cent dividend yield, Google ($US1202 share price but no dividend), Johnson & Johnson ($US92, 2.8 per cent dividend), Exxon Mobil ($US94, 2.7 per cent), and Microsoft ($US37, 3 per cent).
Other big global companies that don’t pay dividends are eBay, Rolls Royce, and US billionaire Warren Buffet’s Berkshire Hathaway, which had a share price last week of $172,425, Prescott says.
An Intrust Super spokesman says retirement savers can also get good exposures to overseas assets through their super fund.
However, he says diversification across international investments is also important, as is the decision to either choose a hedged or unhedged fund.
“Hedging costs a small amount but it greatly reduces risk.
“If the fund is unhedged and the Australian dollar falls, investors will make money but if it goes up, they will lose. Managing risk is one of the most important ingredients of investing.
“Ensure your selected fund managers have sufficient diversification through their portfolio both in geography and in company sectors.”
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