Abandon offshore markets at your own peril

Randy Lert, the US-based chief investment officer for the Frank Russell group, has no doubt Australian investors are losing their appetite for international investing.

And who can blame them? With the Australian share market outstripping its international counterparts by upwards of 20 per cent in the 12 months to April 2002, it would be a brave financial planner who would be prepared to advise their clients to put more money offshore.

But then, Lert has seen it all before. In fact, he says the current situation in Australia at the moment has parallels with the US market during the tech boom.

He says during this period, US investors were questioning the value of investing outside of the US, particularly as it was the US market itself that was generating returns worldwide.

That was, of course, until the tech bubble burst.

“A lot of investors in the US made the mistake of focusing on short-term performance. Financial advisers should make sure their clients don’t make the same mistake here,” Lert says.

The trick for Australian financial advisers, according to Lert, is to ensure their clients remain disciplined enough to maintain an adequate offshore exposure, even in the face of often overwhelming pressure to retreat to the relative comfort of the local market.

It is the type of advice Frank Russell’s Australian operation has had to heed in large doses recently.

The group, which distributes a series of multi-manager funds in Australia through the ANZ Bank, Professional Investment Services and Associated Planners, has persisted with an above average allocation to international equities over the past two years, even as other fund managers ducked for the relative cover of home grown securities.

The group’s international exposure is also highly hedged, a double whammy over a timeframe when the Australian dollar was depreciating.

Frank Russell’s Australian managing director, Alan Schoenheimer admits the group’s steadfast position on international exposure has not always been popular.

But Schoenheimer is also confident things could be about to turn.

With the Australian dollar now on the way up — justifying, it would seem, a hedged exposure to offshore markets — and with many analysts now prepared to stake their reputations on an upswing in international equity markets, Schoenheimer is hoping the group’s patience with offshore markets will finally pay off.

“From a business perspective, it may have been better over the past two years to have looked like the rest of the market, because for two years, we looked like dogs. But over the next two years, we might look like gods,” he says.