Domestic equities bias ‘increasingly redundant’
A persistent bias by Australian investors for domestic equities is “becoming increasingly redundant”, according to a new study by research house van Eyk.
Lead analyst Jerome Lander said in the “International Equities Review 2007” that globalisation is “changing some of the previous rationales for domestic-only asset allocation”.
Lander said local investors are still allocating most assets to Australian stocks when in fact “differentiation between individual domestic and global stocks is becoming increasing redundant”.
“So, arguably, is the persistent home country bias of Australian investors.”
He attributes the reasons for this redundancy to the “increasing globalisation of local companies, weakening geographic boundaries, and Australian companies being valued within a global opportunity set”.
Recommending local investors “consider the full international opportunity set”, Landers said global equity markets are currently “relatively good (long-term) value” compared with Australia.
“Global equity markets offer good opportunities for value add by the most capable fund managers from a diverse range of sources,” he said.
“There is a wider opportunity set (than for Australian equities) from greater stock and sector diversity, and there is potential to benefit from regional allocations, structural market inefficiencies, thematic and macro economic trends and currency selection.”
By comparison, he said, the “main drivers of Australian equities are few — commodity prices and interest rate expectations — and home-biased Australian investors are heavily leveraged to their performance”.
Recommended for you
The possibility of a private credit ETF is looking unlikely for now with US vehicles seeing limited uptake, according to commentators, but fixed income alternatives exist that can provide investors with a similar return.
Ahead of the approaching end of the financial year, State Street has shared five tips for advisers who are using ETFs in their client portfolios.
The use of active ETFs in model portfolios by financial advisers is a key factor in the growth of the products for iShares, according to BlackRock.
Global asset manager BlackRock has identified bringing private markets to the wealth channel as a key business area for the firm that could generate US$500 million in revenue in the future.
