The benefits of direct share ownership in overseas markets
2 min. read
Savvy investors and their advisers are now looking to supplement and diversify their traditional exposure (via managed funds) with single stock ideas and international Exchange Traded Funds (ETFs) that cover a huge range of strategies from underlying industry sectors, such as US financial services. In addition we are seeing more interest in thematic ideas such as wind, water or agriculture, all of which are not available domestically and are unlikely to be in the near future given the small size of our market.
For this reason, there is an increased interested from advisers and investors seeking to access overseas markets directly. And despite popular opinion, it's not just to buy big brands such as Apple, Google or Nike.
The reasons for investing in international shares and equities are well known and understood, including the fact that there are many more opportunities available across a greater number of stocks and sectors.
To put this into perspective in December 2011 there were 201 stocks that made up the ASX 200 compared to 1655 available in the MSCI world index, according to Bloomberg, IRESS, MPW research. This is only a small sub set of the broader market which consists of circa 2000 shares domestically and 14,000 globally, according to the MSCI ACWI All Cap Index.
In addition to a larger investable universe, currency is also driving demand. For those holding stocks directly and not hedging their position (which can be difficult and a potential deterrent), the changing value of the Australian dollar may present investment opportunities or risks in itself. Either way currency is an important consideration when investing overseas.
With all of this in mind, one might wonder why more investors do not trade and hold more international stock. The answers are, thankfully, largely historic.
Up until recently the cost of trading was prohibitive, opening an account was challenging and tax was complex, while valuable research and information was hard to come by. All these items combined made it difficult for investors, large and small, to build and implement high quality and diversified portfolios across multiple markets.
Like so many industries, the internet and advances in technology are largely breaking down these barriers. Investors can now access the world's largest exchanges at a reasonable cost and have access to research, analytical tools to support them in their investment decisions.
In addition to trading international equities via traditional broking services, some Australian platform providers, like Netwealth, will enable direct access for super and non-super investors, and can dramatically simplify the process by offering custodial, settlement, reporting and administrative services from a single provider.
As with any investment there are risks. Investors and advisers need to carefully consider if investing directly into international markets is for them, or if the plethora of options such as managed funds or ETFs available domestically will meet their objectives. Some investors may even wish to consult a financial adviser, who can assess their personal objectives, financial situation and needs prior to any investment being made.
If you would like to learn more about investing internationally, you can watch a recording of our recent webinar on ETFs presented by BetaShares, or call us on 1800 888 229.
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This information has been prepared and issued by netwealth Investments Limited (netwealth), ABN 85 090 569 109, AFSL 23097, ARSN 604 930 252. It contains factual information and general financial product advice only and has been prepared without taking into account your individual objectives, financial situation or needs. The information provided is not intended to be a substitute for professional financial product advice and you should determine its appropriateness having regard to your particular circumstances. The relevant disclosure document should be obtained from netwealth and considered before deciding whether to acquire, dispose of, or to continue to hold, an investment in any netwealth product. While all care has been taken in the preparation of this information (using sources believed to be reliable and accurate), no person, including netwealth, or any other member of the netwealth group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information.