Why greater exposure to international shares makes perfect sense
Compared with the ASX, which is heavily weighted to the fortunes of a handful of financial and mining companies, international equities offer a much broader and exciting range of investment opportunities.
Ever contemplated investing in international shares, but either didn’t know how or were too fearful to dip your toes in the water? Relax, you’re not alone. While Australia has one of the world’s highest rates of share ownership (around 37 per cent according to an ASX Investor Study) the number who invest in global share markets, remains disproportionately low (at 13 per cent).
Given that the Australian share market represents a trifling 1.7 percent of global equity markets (by total capitalisation), the argument for allocating more of your portfolio to listed stocks beyond the local bourse is becoming increasingly compelling. For starters, it allows you to tap into multinational companies with upside leveraged to global markets, rather than Australian companies limited to local or even regional markets.
This explains why international equities has been the best performing asset class over the past year, three years (13.8 per cent), five years (12.2 per cent) and 10 years (12.3 per cent) on a per annum basis.
Greater depth and diversity
While the opportunities available domestically on the ASX shouldn’t be underestimated, investing in international shares - to seek exposures unavailable within domestic multinational companies - should over the long-haul return in spades.
For example, one of the key benefits of investing within global share markets is the sheer depth and diversity of quality stocks within a myriad of sectors – like e-commerce, healthcare, broader industrial and industrial automation, AI, robotics, payments, renewables to name a few - that either have little or no representation on the local market, (see table).
That’s especially true within the technology and innovation sectors, where the white space – the opportunity to meet as yet unrealised future needs, that’s been accelerated since COVID - is colossal.
ETFs have democratised international investing
Unlike years past when investing in international shares was the exclusive domain of wealthy individuals or institutional investors, exchange traded funds (ETFs) now provide low-cost, accessible exposure to a diversified basket of international equities. One way to access global industry leaders such as Microsoft, Apple, Amazon, Johnson & Johnson and Tencent is via InvestSMART’s International Equities portfolio.
By investing in a preferred blend of international ETFs, the portfolio lowers the volatility and overall risk, thereby increasing the potential for long-term growth.
With weighted exposure to the MSCI world markets, InvestSMART’s International Portfolio includes key holdings like iShares Core S&P 500 (IVV) which provides you with exposure to US’s biggest stock market, iShares Asia 50 ETF (IAA), Vanguard FTSE Europe Shares (VEQ), and Vanguard MSCI Index International Shares ETF (VGS) – giving you the correct weighting to all developed markets outside of the ASX 200 in one simple place.
Despite the impacts of COVID, Brexit, and US-China trade wars in the first six months of the financial year, InvestSMART’s International Portfolio still managed to finish the financial year in the black – up 4.22 per cent after fees (estimated yield currently 2.45%) and outperformed its benchmark (the MSCI World (ex-Australia) Total Return Index, unhedged) by 1.83 per cent.
International equities is a long-game
While event risks, like COVID are both unfortunate and unforeseeable, it’s comforting to know that InvestSMART’s International Portfolio is designed to perform best over a seven-plus year timeframe. Having a longer investment horizon helps to smooth out the bumpy ride associated with investment cycles.
InvestSMART’s International portfolio also dispels the often held notion that buying global stocks is expensive and by nature complex. By investing in ETFs, the International Portfolio removes the odious, expensive and time-consuming task of having to be a stock-picker of direct global shares, and the head-ache of knowing when to buy or sell.
And, as part of our capped fee range, our International Portfolio also helps you keep more of what you earn rather than it being eaten up by onerous fees.
Given how much global markets have been sold off since COVID hit back in March, now could be the perfect time to start building your own stake in some exceptional global growth stories, through the InvestSMART International Portfolio.
Find out more about investing in the InvestSMART International Portfolio by clicking through to our Invest with us page.