International Ship has Already Sailed

There has been a number of new International Funds popping up recently. Steve Johnson from Forager Funds discusses why investing internationally potentially isn't as attractive as it has been, and why these new products are likely to disappoint.

International Funds are sprouting like mushrooms across the Australian funds management space. In the past few weeks alone, I’ve noticed three new launches and a LIC changing its mandate so as to invest in international stocks.

The pitch is pretty straight forward. The Aussie dollar is going to fall. International stocks have outperformed their Australian counterparts over the past few years. And Australian stocks are only 3% of what is available in the world. Just imagine all those opportunities you could be making a fortune from.

Long time Bristlemouth follows will know my view on international stocks. Most Australian investors are dramatically underinvested offshore. Our harping on about the topic a few years ago hopefully gave you enough of a kick along to do something about it, either by investing in our Forager International Shares Fund or elsewhere.

Yet the current wave of new products is likely to disappoint. Yes, you will get foreign currency exposure. But that is not as compelling as it was when the Aussie was 1.05 to the US dollar. And if a punt on a fall in the AUD is all you are after, you can buy foreign currencies for a few basis points. There is no need to pay me or anyone else active management fees.

So then you are left with the case for foreign stocks. US markets have tripled since the depths of 2009 and are particularly expensive. Europe is increasingly becoming so. Asia is relatively attractive, but most of the product launches I have seen give the region scant attention.

Including FX gains, the international index we measure ourselves against is up 74% since we launched the Forager International Shares Fund in early 2013 (the Fund is up 61% despite averaging more than 30% in cash). That might make it easier to sell product to the average retail investor, but it makes the prospects for future outsized returns much diminished.

We’re still finding attractive opportunities internationally. And I still believe that, in general, most Australian investors need more international exposure. But as far current prospects go, I’m more excited about the opportunities at home.

Gareth and I had lunch with a couple of small deep-value fund managers in London last Friday. All they wanted to talk about was Australian mining services stocks. They have the whole world to work in, yet are currently adding significant exposure to Australia. Just as the Australians start heading offshore. Funny that.

 

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