While the quantum of overseas shares held in self-managed super funds (SMSFs) has been increasing, it is still miniscule as a percentage of total SMSF assets, according to Marcus Tuck, head of research for Insync.
Tuck pointed to the latest Australian Taxation Office (ATO) figures for September 2013, which found direct overseas shares accounted for only 0.4 per cent of total SMSF assets.
Even including global equities held in managed funds, Tuck said that the percentage would still be quite small.
He said that while it was understandable that SMSF holdings were dominated by Australian listed shares, cash, term deposits, direct investment properties and Australian managed investment trusts, the Australian listed market was quite concentrated in both financials and materials.
“Banks now operate in a lower credit growth environment and, by their nature, take on risks associated with high financial leverage, while mining companies are subject to wild swings in commodity prices as we have seen,” said Tuck.
“Most local investors are missing out on diversification into world class companies in sectors that are under-represented on the Australian share market, such as technology, pharmaceuticals, food & beverage, consumer brands, aerospace and luxury goods.”
According to Tuck, many of those companies were wired to the meteoric rise of the ’emerging consumer’ in many parts of the developing world.
“It’s simply a fact that there are far more exceptional, world class companies listed overseas than there are in Australia,” he stated.
“Many of those global companies have impressive track records of compounding earnings and dividends at a rate and consistency that would be difficult for all but a handful of Australian companies to achieve.”
And with the Australian dollar still trading well above its historical average, Tuck said that there was still an opportunity for SMSF investors to rebalance their share portfolios to give greater weight to global stocks.
“The case was very compelling early last year when the Australian dollar was above parity and share prices were lower,” he said.
“Whilst those returns are unlikely to be repeated this year, there is still a case to own high quality overseas shares for the long term.”
Originally published by SMSF Essentials.
