The asset class Aussie investors continue to miss out on - International Equities

According to the latest ASX investor survey, which was completed in October, only 2.1 out of every 10 Australian retail investors have some exposure to international equities. Now we would point out that’s a vast improvement on the 2014 survey where only 1.3 out of every 10 Australian retail investors had some exposure to international equities, so our investment attitudes are changing.

But what hasn’t changed over that time is the percentage of international equities held as a total of one’s total investment – just 2 per cent.

Think about that – two per cent of all your investment assets are international equities. This piece of information alone goes a long way to explaining why Australian investors are missing out on performance they deserve.

To explain this further, here is the performance of the S&P 500 compared to the ASX 200 on a total returns basis over the past one, five and 10 years.

1-Year

5- Years

10- years

And it’s not just the US outperforming the ASX. Here is Japan and Germany over one and 10 years on a total returns basis.

1 year

10 years

The consensus allocation to international equities in a typical growth portfolio is over 33 per cent. Compare that to the 2 per cent of those that are invested in international equities and the 0 per cent exposure that 7.9 out of 10 Australian investors have.

This is a huge missed opportunity and shows that investors are losing out on a lot of total return performance through being underinvested. So, why do Aussie investors continue to miss out on performance they should be getting?

The most common reason for not entering international markets is that international investing can be difficult – it’s not hard to see why.

There are over 41,000 listed companies across the 24 MSCI developed markets across 12 different currencies. They all have their own exchanges, their own tax and regulatory systems and, of course, different brokerage systems.

However, over the past decade, those issues have been significantly reduced with the introduction of exchange traded funds (ETFs). ETFs have simplified international investment issues by being listed on the ASX, traded in Australian dollars and held on the shareholder’s holder identification number (HIN).

However, not all of these issues have been resolved, specifically, what should you be invested in?

It’s this question that led us to create the International Equities Portfolio which provides Australian investors with the ability to tap into the high potential growth of global markets and aid in that all important international diversification.

The portfolio is made up of five ETFs giving the holder exposure to the US, Europe and Asia. If we look at the top five companies held in this portfolio, the running order is Apple, Microsoft, Amazon, Facebook and Tencent – the kind of international companies most investors want exposure to but have been unable to access due to barriers that come with international direct investment.

What we also believe, which is the most important part of investing with any fund, is making sure we beat our peers, which we have consistently done over the past five years. In fact, over the past three years that outperformance has been, on average, over 1 per cent. This is significant when you factor in that for the past three years the fund is averaging 9.4 per cent per annum.

If you would like to find out more about the International Equities Portfolio, please click here.