Access global growth locally

“The British East India Company’s ships flew an ensign incorporating the Union Jack. Today corporate nationality is harder to determine.” – The Economist May 2014

The same is true for a growing number of Australian companies.  The success of many companies listed on the ASX is inexorably linked to global macro factors.  As such geographic diversification of revenue is as important as sector and stock diversification.  The good news is that it is possible to be exposed to global themes by investing locally.

Everyone who has ever looked for a job in Australia probably knows seek.com.au. But an investment in Seek Limited is an investment in global growth.

Most of us who have ever had pathology tests in Australia would have seen Sonic Healthcare’s logo on their paperwork.  It’s our largest pathology company.  But an investment in Sonic is an investment in a global business.

Over 50% of Seek’s revenue is derived from Asia plus it has businesses in Mexico, Brazil and Africa.  Through acquisition and corporate activity, Sonic Healthcare is the third largest pathology company in the US plus it has companies in the UK, Germany, Switzerland and Belgium.  Seek and Sonic are Australian companies that have diversified geographically and offer a way for Australian investors to do so as well.

Having a well-diversified Australian equity portfolio will allow investors to benefit from global macro themes.  If the value of the Australian dollar falls, then hypothetically Sonic’s revenue from its US operations will be worth more in Australian dollars.  If the economies of Asia grow then Seek may be ideally placed to benefit from increased labour growth in the region.

It’s a big wide world and global expansion is a risky exercise. But that’s how investors make money. You hold a portfolio of different risks across different stocks, different sectors and different geographies.  You diversify to get the upside of being a risk-taker with reduced downside.

Investing in Australian companies that have a global presence is the easy way for Australian investors to get another dimension of diversification. This way you do not have to manage foreign currency risks and you do not have to deal with the difficulties and timing of overseas stock exchanges. 

An easy and effective way to have access to global growth is via a well-diversified portfolio. The Market Vectors Australian Equal Weight ETF (ASX: MVW) is three times more diversified than the S&P/ASX 200 Index (ASX 200) (as measured by the Herfindahl index[1]). This diversification extends beyond stock and sector to geographic earnings as well. MVW tracks the Market Vectors Australia Equal Weight Index (MVW Index). Because of MVW Index’s equal weight methodology, MVW has more exposure to the Seeks and Sonics of the market than you will get with a typical ASX200 tracking fund. Here are some examples:

Source: Market Vectors, Bloomberg, CYTD 1 Jan 2014 to 30 June 2014.  Dividend yields as at 17 July 2014

MVWis the only equal weight ETF in Australia and holds a portfolio of 74 of the largest and most liquid securities on the ASX. It is an easy and cost-effective way to invest locally and get a portfolio with global revenue exposure in a single trade.

MVW is available to buy on the ASX.

If you would like to speak to one of our ETF specialists email us at info@marketvectors.com.au or call 02 8038 3000

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