Money Matters Monday 26 February 2018
Overseas Investments Have Done Better
The Australian Tax Office figures show that self-managed super funds have less than 1.5 per cent of their investments in overseas assets.
Most public-offer super funds have far more international exposure.
Balanced funds usually have 20 to 30 per cent international shares and growth portfolios 30 to 40 per cent international equities. Even conservative super funds have around 30 per cent international though more is in overseas fixed interest than shares.
Financial planners also find many experienced investors who trade Australian shares and own commercial and residential property have low levels of international assets. But it seems many self-directed investors avoid overseas investments.
Overseas investments generally yield higher returns
This is odd considering the potential returns. Australian shares made 13.0 per cent for the year ended January while international shares earned 19.7 per cent. For the last five years local shares made 9.2 per cent per annum while overseas shares averaged 17.0 per cent annually.
Different investment sectors do have good and bad periods, but even when we compare the last ten years, a period that includes the global financial crisis, Australian shares averaged 5.2 per cent per annum while international shares made 7.2 per cent annually.
The Australian share market makes up less than 2 per cent of the value of global share markets so 98 per cent of investment opportunities are overseas. Logic would suggest that one would be silly to think all the best investment options are here.
The Australian share market has around 30 per cent of its value in financial stocks, mainly the four big banks. Overseas markets have less than 10 per cent in financials including banks.
Diversification is worth considering
We also have a heavy weighting to mining stocks whereas overseas markets have a small proportion in them. Overseas markets have many sectors that are underrepresented in Australia. Some have strong growth potential.
The big technology companies like Apple, Amazon, Google, and Facebook are changing the way we live. There are computer chip manufacturers like Intel, Samsung and Toshiba. There are the world’s big pharmaceutical companies like Astra Zeneca, Pfizer and GlaxoSmithKline.
European company Unilever has 400 brands, 13 of which make sales exceeding a billion euros annually. Proctor and Gamble has increased its dividend every year for 59 years, Coca Cola has done so for 50 years and McDonalds every year since 1976.
German firms Siemens and Daimler Benz are world leaders.
There are many excellent investments overseas. They may cost a little more in fees to access but the net returns are higher than many local investments.
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