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
Sydney-based alternative fund manager East Coast Capital Management has formed its first advisory council as it enters its next phase of growth.
With 40 per cent of advice practices looking to increase their ETF usage, the next frontier being embraced is smart beta ETFs with flows doubling in July, providers have said.
Australian ETFs saw flows of $5.8 billion in July, more than double the previous month, and adviser adoption is tipped to help total flows reach $50 billion by the end of the year.
Pinnacle’s London affiliate, Life Cycle Investment Partners, has secured over $15 billion in FUM in its first year and achieved profitability, the firm’s fastest affiliate to do so.
