My colleague Luke Durbin recently wrote a great blog post on how a DIY investor can search for investment ideas on the ASX. It makes a lot of sense for an Australian investor to focus on ASX listed equities (particularly if their time or effort is limited) given that we have much better visibility and exposure to these Australian companies. Because of this we often can understand a company better, how they operate, what their market is and what their growth prospects are.
However, it is sometimes worth taking a step back and looking at Australia in the context of the global economy. The graph below is the breakdown of the MSCI World Index, an index that tracks global equities the same way the S&P/ASX 200 or All Ordinaries is used to track Australian equities.
Is Australia missing? Have we just been left out? Not quite, Australia is part of 3% marked “Others”, bundled together with a few other countries that aren’t quite big enough to warrant their own label on the graph. Depending on how the ASX is performing relative to the global exchanges we are generally between 0.6% and 0.7% of the MSCI World Index.
The point I am trying to make here is that it is a wide world out there beyond the ASX that investors can dip their toes into. Of course, investing internationally has its risks; there is generally much less visibility of these companies (with the exception of large global brands). Currency movements become another risk to take into account, and some countries will have different reporting requirements or standards (not to mention may not even report in English!).
That said, it logically makes sense that the wider you make your investment universe, the more likely it is to find better companies and better investments. This is something we are trying to achieve at Farnam with our International Opportunities Portfolio, which has recently taken positions in a Norwegian bank, a French auto-parts supplier, a Danish jewelry maker, a US carbon-composites manufacturer and a UK performance marketing company.
While we face some of the risks highlighted above, we can apply our domestic investment process and knowledge that we have developed over time and apply it internationally. For instance, we may love an Australian business but find their valuation too expensive to invest in. However, we may be able to take that research and apply it overseas, potentially finding similar companies that are undiscovered and trading on much more reasonable multiples.
So don’t be scared of the wide world of equity investing. If you have the time and effort available, you may be able to apply your investment skills that were honed domestically to the global investment universe!
This document has been prepared by Farnam Investment Management Pty Ltd (Farnam) ABN 15 149 971 808 AFS Licence 430574. Australian Unity Funds Management Limited ABN 60 071 497 115 AFS Licence 234454 is the responsible entity of Farnam Managed Accounts. While every care has been taken in the preparation of this document it does not contain any recommendations to buy or sell any particular stock(s) noted. Farnam makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation and needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.