Summary: Investing in international shares remains underdeveloped in Australia, despite our market making up less than 2% of world equities. Institutions and funds insist on only investing in the US, Europe, the UK and Japan, but many opportunities also exist elsewhere, where 70% of the population lives and a burgeoning middle class is developing.
Key take-out: Prepare to diversify your portfolio into international stocks across the developed and emerging markets.
Key beneficiaries: General investors. Category: Shares.
|Our surveys continually show Eureka subscribers want to know more about overseas investing. However, as self-directed investors our subscribers want to invest directly in the great markets of the US, Europe and Asia. In recent times the flourishing of the ETF (Exchange Traded Fund) industry means Australian retail investors can buy sectors or individual stocks with ease. The facility of internet-driven broking services also means we no longer need to rely on managed funds to act as our bridge into a wider world. Today we introduce Clay Carter, who is to become Eureka's first specialist contributor on international equity investing. (You can watch Clay talking to Alan Kohler in the video above). In the weeks ahead, watch out for his investment ideas ... welcome aboard Clay! (James Kirby, Managing Editor)|
I have been investing Australian institutional and retail funds into global equity markets since 1988. Working for Australian financial institutions such as AMP, Legal and General, QBE Insurance and Perennial Investment Partners, I have been fortunate to be able to invest in most of the world’s equity markets and meet with thousands of companies. This experience, I hope, will enable me to offer actionable investment ideas and incisive market comments for Eureka subscribers.
When I first started in the investment business in the early 1980’s, institutions, banks, and brokerages had a monopoly on the information that affected markets and companies and even that was a bit primitive. Stock prices were delivered via a curious device called a Quotron, and news flowed from a printer roll that hung on the wall! Retail investors had to call their broker or read the financial newspapers the next day to monitor their investments. Contrast that with now. Investors now have CNBC, online advisories, real time investment websites, and financial media that provide 24 hour commentary on every market move, company announcement, and economic statistic complete with analysis from dozens of “talking heads”. Unfortunately that doesn’t make it easier for the average investor, simply because there’s TOO MUCH information and much of it is geared only to the “right now”. Therefore, if I can do one thing, it will be to cut through the noise and net it out for individual investors and provide ideas that transcend the daily buzz of the markets.
Now if I’m going to provide you with investment advice and comment you should know exactly what sort of investor I am. For want of a better word, I am unabashedly a growth investor. I have always been attracted to the high growth areas of the markets such as technology, pharmaceuticals, biotechnology and media. I am attracted by companies that are growing well in excess of the market and their industry peers. I am also impressed by companies that are strong innovators and have a sustainable growth trajectory over the medium to long term.
That’s not to say that all my portfolios will be full of these types of companies or I am only going to recommend them to the exclusion of other parts of the market. I may love growth but I am also mindful of risk hence I am always careful to be diversified in my portfolios; that is I must be diversified as industry, market capitalization, and region.
I am also a proponent of what I call 21st Century Investing. As a keen student of history, I realize that the 21st century is not going to mirror the 20th in terms of economic and investing opportunity any more than the 19th century was like the 20th. If that’s the case, why do institutions, superannuation funds and index providers like M.S.C.I. and F.T.S.E. insist on investing and calibrating like its 1999 with the bulk of their weightings in the “old world” – the U.S., U.K., Europe, and Japan – to the exclusion of where 70% of the world’s population lives and a burgeoning middle class is creating numerous investment opportunities, not to mention a growing share of global GDP? They call those economies “Emerging” markets, a huge misnomer in my opinion since Korea, Taiwan, Brazil, and Mexico “emerged” decades ago. Sure, there are still emerging markets out there, but they are in places like Nigeria, Cambodia, Laos and Myanmar. In looking for great companies, I make no distinction between so called developed and emerging markets and include my Brazilian, Russian, Indonesian, and Indian investments with my U.S. and European ones in one portfolio.
While not necessarily a thematic investor, I believe there is a great growth opportunity in companies that continue to disrupt existing industry structures.
What we are seeing now is that innovation and disruptive technologies transcend the technology industry and can be found in other industry groups like biotechnology, healthcare, materials, oil and gas, and renewables.
Companies like Google continue to innovate while Tesla makes the electric car proposition extremely attractive. The media industry is being turned on its head: Watch how the music industry is being upturned by services such as Pandora media while television networks must now deal with Netflix.
This is a subject that will be developed over future articles when we discuss what exactly are the important disruptive technologies and what companies are participating.
So what do I see that current investing environment? I would expect another positive year for global equities, although certainly not as strong as 2013. Central banks are accommodating, interest rates low, inflation a shadow of its former self and valuations not stretched. I continue to like the US with its improving macro and Japan is interesting assuming Abe’s “third arrow” gains traction. Europe remains in a sub trend growth environment and has not embraced real reform so I’m cautious there.
In the weeks ahead I look forward to picking both sectors you might like to consider through ETFs and individual stocks on the many markets outside Australia. There are splendid opportunities if you know where to look.