A- A A+

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."

 

 

 



Similar articles from Investing

If you can't beat SMSFs, join them

 | 9/30/2014

JoinIndustry funds are offering superannuants greater choice over their investments in an effort to stem the flood of money into DIY super. It is an intelligent strategy.


A different property perspective

 | 9/24/2014

New ideaIn investment it is a case for many of "often wrong, never in doubt". It is valuable to get different views to make mature judgements. Here is one.


The fault line under the stock market

 | 9/23/2014

Fault lineA report says that about a third of Australia's listed companies are close to the edge. It is a sober reminder to SMSF investors who put their savings into the shares.


Are we heading for a banking crisis?

 | 9/22/2014

BanksAustralian banks are not holding as much equity as they did 10 years ago, and their leverage is high. Everything depends on a healthy housing market. Difficulties may be on the horizon.


What the gold price is telling us

 | 9/21/2014

GoldThe gold price is down by a third from its peak and by 10 per cent this year. What does it mean?


 

Subscribe

Subscribe to the Personal Super Investor weekly email to keep abreast of developments in SMSF law and investment markets. SMSF investors looking to improve investment returns from shares, property, cash or other specialised investments, will find the PSI weekly newsletter an invaluable resource.

Subscribe now »

Disclaimer

The contents of this website are of a general nature only and have not been prepared to take into account any particular investor's objectives, financial situation or particular needs. Our content is not intended to be advice and must not be relied upon as such. You should seek independent advice tailored to your specific circumstances prior to making any decisions. Personal Super Investor does not provide financial product advice or recommend any financial products: Where this website or it derived newsletter/electronic publication refers to a particular financial product, whether it be within our editorial or a 3rd party advertising, advertising promotion or advertorial, then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. We do not make any representation or warranty that any material on the Personal Super Investor website will be reliable, accurate or complete, nor do we accept any responsibility arising in any way from errors or omissions of our content or any content provided by any advertiser appearing the Personal Super Investor website. We will not be liable for loss resulting from any action or decision by you in reliance on the Material (whether editorial or advertising) on the Personal Super Investor website, nor any interruption, delay in operation or transmission, virus, communications failure, Internet access difficulties, or malfunction in your equipment or software. By using the site you acknowledge that we are not responsible for, and accept no liability in relation to any content contained on the site that you may use, including any other users’ use of the Personal Super Investor website in any circumstance. You use the Personal Super Investor website at your sole risk.