Historically Australians have over invested in domestic equities at the expense of international equities. Many feeling comfortable with their investments being closer to home, in a company they can connect with and read about in local media. There being a feeling of greater understanding of the political environment and the domestic economy and the cycle. It has also been expensive and difficult to invest overseas until more recently but this is now not so much the case. Also, Australia’s franking credit system is attractive to investors with many obtaining cash refunds of tax.
In all, Australia has enjoyed a 25 year bull run, as reported by Platinum Asset Management in a recent article: “The International Opportunity”.
The sheer quantity of overseas investments is daunting and this is where professional fund managers express their expertise.
There is no doubt international equities provide exposure to markets with different economic, political and demographic profiles, not to mention a much larger universe of industries, allowing investors the opportunity to invest in companies operating in countries with faster growth than the domestic Australian economy. The franking credit system does not allow tax refunds for investors investing overseas although foreign tax paid can be used as a credit against tax payable in Australia.
An overly concentrated portfolio can be risky
the S&P/ASX 200 Index is skewed heavily towards the Financials and Materials sectors, a reflection of the fact that the Australian economy is disproportionately reliant on the financial services and resources industries.