Investors heading abroad for growth

20 November 2015

Wrap platforms are increasingly evolving to meet the needs of investors looking offshore for growth, with the addition of managed funds, ETFs and SMAs, Cameron Garrett writes.

Traditionally, the investment portfolios of Australians have been heavily weighted towards investing in Australian equities.

This is an interesting statistic, especially as the Australian stocks available to investors represent only two per cent of the global equity market1.

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The historical trend of investing locally is perhaps not surprising, as locally held stocks provide investors with a sense of familiarity as the companies are represented on the investors' home exchange and tend to be well recognised household names.

However, with Australia representing such a small proportion of the world's equity market, we are seeing a shift of more and more Australians wanting to invest in offshore markets and diversify their portfolios.

This is a prudent diversification strategy, and gives investors access to new growth opportunities, as well as expanding their portfolio across different countries, markets and assets.

Domestically, the majority of investors have access to equities that are focused on only a few sectors, in particular financials and mining.

This has led to an increased demand for a broader range of sectors that are currently not as accessible for Australian investors, such as technology, healthcare, pharmaceutical and aeronautical firms, and access to some of the world's largest companies and brands, including Apple and Google.

Further, softening commodity prices have continued to play a role in influencing local investors looking offshore for growth away from the mining sector, which continues to be overrepresented in most clients' Australian equities portfolios.

The historically low interest rates the nation is currently experiencing appears to be another factor causing investors to look offshore for growth opportunities and to diversify their portfolio away from the Australian share market, currency and overall economy.

Investors seeking easier and more cost-effective access to global markets are increasingly using wrap investment platforms.

Wrap platforms are an efficient way for advisers to have greater visibility, flexibility and control of clients' investments across a broad range of asset classes, while maintaining consolidated tax reporting for their clients.

A Platform for change

Over recent years, there has been a trend towards wrap platforms evolving to create new opportunities and improve investment outcomes for advisers and their clients.

This evolution has been essential to provide advisers with efficiencies so that they can continually adapt to meet clients' changing investment needs. It has also been driven by the shifting needs of clients, demand for more efficient adviser platform interaction, evolving market conditions as well as changes in the regulatory landscape.

Earlier this year, we launched international listed securities as an investment option on Macquarie Wrap to provide more investment choices and access to new asset classes.

This has been well received by advisers and clients looking to take advantage of opportunities in international equities in an accessible and simple way alongside their domestic portfolio.

Many Australian investors also choose to invest in global equities through managed funds and Exchange Traded Funds (ETFs), as they provide the resources and services of active professional funds management, and take into account economic trends, industry themes and the stock selection process.

The trend in Australian investors increasingly looking offshore for growth and diversification has been complemented by similar interest in newer investment opportunities becoming more popular with advisers and clients.

For example, the wider availability of separately managed accounts (SMAs) domestically has seen strong interest emerge from investors who are embracing their ability to diversify across a wide selection of assets, while retaining beneficial ownership and taking the complexity out of actively managing an investment portfolio.

Despite having been a premium service on platforms in the US for 25 years, SMAs are only a fairly recent addition to many platforms in Australia, and the accessibility and consolidation with other assets that SMAs on platforms provides is leading to an increased demand.

SMAs provide financial advisers with the ability to view and manage their clients' assets on one efficient, streamlined and consolidated platform, giving them access to a broader range of asset classes, strategies and styles, all actively managed by a team of portfolio managers and market participants, to construct a unique portfolio to cater for their client's different needs.

Since we launched SMA on Wrap, we have observed growing interest in managed accounts as investors increasingly embrace the ability of SMAs to access a wide selection of assets, while taking the complexity out of managing an investment portfolio. This has led to us continuing to expand the available investment managers and SMAs on Macquarie Wrap.

As investors increasingly look offshore for growth and portfolio diversification, while simultaneously seeking out new opportunities to reduce complexity and access different investment products, Wrap platforms are changing and adapting to ensure these needs and interests continue to be both anticipated and delivered on for investors and advisers alike.

In recent years we have seen the addition of international listed securities, SMAs, and a far wider range of managed funds and ETFs added to wrap platforms to help meet these needs, and we expect this evolution in portfolio solutions to continue, providing further opportunities for investors.


1. As at 30 June 2015, 1st Half 2015 Market Highlights, World Federation of Exchanges

Cameron Garrett is the head of wealth product for Macquarie's Wealth Management division.

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