Aug 16

The hunt for world class investments

The hunt for world class investments

Chances are if you have recently bought a computer, watched a movie or popped a headache pill you have boosted the profits of a global company based in LA, Tokyo or Berlin. So why not grab a share of the profits by investing globally as well as locally?

There are compelling reasons to consider an investment in global shares, not least of which is the opportunity to share in the success of household names such as Apple, Google, Johnson & Johnson, Boeing and Visa.

By international standards, the Australian market is a small fish in a big pond accounting for just 2.3 per cent of the global market.

What’s more, Australia lacks any major stocks in significant sectors in the world economy, such as technology, pharmaceuticals and aerospace.

Offshore trend
So it is not surprising that many investors are recognising the diversification and other benefits that come from investing in quality companies with a global reach.

According to Morningstar’s 2013 Global Flows Report, Australian investors favoured international share funds at the expense of their domestic counterparts.

Reasons include renewed confidence in global markets, such as the United States and Europe, and opportunities in significant growth industries and regions not available here, from consumables to fast growing emerging economies such as China and India.

Superannuation funds have been leading the charge, although Australian Tax Office statistics show self-managed superannuation funds are also investing more in offshore assets overall.

With $1.8 trillion in superannuation money looking for a home, the opportunities to invest in a diverse range of large Australian companies is limited. The local market is dominated by the big four banks, BHP Billiton, Rio Tinto and Telstra. In fact, our top 10 companies represent 50 per cent of the local market’s value.

Easy access
Luckily, gaining access to offshore investment opportunities has never been easier. The simplest and most cost effective way is to purchase units in a managed global share fund and let specialist fund managers research and work with you to select suitable investments.

You can choose from a wide range of listed and unlisted global share funds and international exchange traded funds. Listed on the Australian Securities Exchange (ASX), exchange traded funds are funds created to track a range of stocks or sectors from around the world, much like an index fund.

In fact, the most difficult thing about investing overseas is that Australians are now spoilt for choice. Your adviser can help you explore your options.

Currency movements
One issue that arises whenever you invest Australian dollars overseas is fluctuation in the exchange rate. It is for this reason that many global fund managers offer hedged and unhedged versions of their fund to take account of these currency movements.

An unhedged fund means investors are exposed to fluctuations in the Australian dollar. This can be a good thing if our dollar falls relative to the currency in the country where the investments are held.

With a hedged fund, the investment manager uses strategies to offset the impact of currency fluctuations. Investors will be protected from the adverse impact of a rising Australian dollar but they will also miss out on the benefits of a falling dollar.

Lower risk
A key to reducing investment risk is diversification. Within the share portion of your portfolio that means buying a variety of stocks in different industry sectors and in different countries.

International shares offer access to some of the most established and successful brand names, in dynamic sectors in some of the oldest and newest markets.