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Big boys look at overseas stock markets

01 September 2014  |  Investing

OSAustralia's superannuation pool is over $1.8 trillion. The local stock market is worth slightly less. About half the ownership on the local stock market is foreign. That is an awful lot of capital sloshing around and unsurprinsgly fund managers are looking more closely at offshore equity markets. It is especially advantaged by the high Australian dollar, which argues in favour of offshore buying. If and when the $A does fall, then the value goes up (in the local currency).

It is a lesson for self managed super funds, which usually do not look offshore to any great extent.

The AFR has an article on the increasing interest in looking at international stock markets. It is an indication of just how big the superannuation pool of capital is:


"The nation’s largest fund managers are racing to set up global equities teams as the $1.85 trillion superannuation system outgrows the local equity market and the economy.

IFM Investors, the $50 billion ­investment fund owned by 30 industry super funds, this week told consultants and clients it was setting up a division to track global equity markets to respond to growing demand for low-cost ­exposure to international markets.

“As the superannuation system grows, it is logical to allocate more to global equities,” said Aidan Puddy of IFM, who will manage the newly ­created business that will track global equity indices for large institutions.

At $1.85 trillion, local pension assets have eclipsed the total Australian ­Securities Exchange equity market ­capitalisation of $1.69 trillion and the size of the economy measured by gross domestic product of $1.67 trillion.

The mass of super funds has raised concerns among institutional investors that the weight of money is in danger of crowding out investment returns while concentrating the ­exposure of savings to local companies dominating the sharemarket.

“Given that the top 20 in Australia comprises 70 per cent of the market, global equities certainly give a better diversified equity exposure,” Mr Puddy said."


There are certainly risks in looking offshore, especially if it is a matter ofr picking individual companies. For self managed super investors, who often do not have the time to research individual stocks, index funds are a lower risk option. But there is good reason to look at diversifying offshore.

One of the problems with investing in the ASX is that it inevitably means a heavy focus on the big banks. That means a heavy exposure to Australia's property market, because the banks' business depends on strong property prices. Those who think they are diversifying away from property by buying bank shares may find it is not the case.

Most managed super funds have a significant allocation of offshore equities:


"The push into global equities has led to growing divergence in the investments of large institutional super funds and individually managed super funds. Large superannuation funds have gradually increased their exposure to international equities which now account for a quarter of all investments.

A Morningstar survey showed that international equities attracted $847 million of inflows last year ­compared with $5.8 billion of outflows from Australian equities funds.

Default superannuation funds invest a quarter of assets in global equities, about the same as local stocks, with industry funds investing almost one third in international equities."




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