Many investors and their advisers remain unsure where to start when it comes to offshore investing, believing that the various barriers to entry are too high to surmount. However, as Mark Oliver explains, this view unnecessarily limits investment horizons, cutting off advisers and their clients from what is literally a world of opportunity.
There is growing understanding that the Australian equities universe can only take an investor so far.
That is because the Australian market is limited by its relatively small size in relation to the ever-growing volume of investible funds seeking value and returns. Camel though the eye of a needle, anyone?
One answer is to look offshore. Certainly in the past, gaining global exposure was a privilege afforded primarily to the big institutional players due to the relatively large investment size, administration hurdles and transaction costs involved in gaining exposure to this expanded range of countries, currencies and companies.
Today this is no longer the case. The advent and increasing popularity of ASX-listed global exchanged-traded funds (ETFs) is just one powerful example of exactly how much the world has opened up for Australian investors.
Using ETFs, it is now relatively easy for investors to gain exposure to otherwise hard-to-access global markets via a simple vehicle that offers transparency, liquidity – and is very cost effective.
However, global investment success is about far more than choosing the right investment vehicle – much as it helps.
There are additional layers of investment nuance to consider, especially given that significant shifts have created a new investment environment in which the old rules do not apply.
The fact is, the ‘rest of the world’ is a big place. It’s not just one amorphous mass.
At any given time, there are many key differentials at play, any of which can directly affect investment outcomes.
And, especially given the changed nature – and changeability – of the new world environment, those differentials are far from cut and dried.
For example, taking the black and white ‘emerging versus developed’ view; or looking to make investment decisions through a straight country market-cap weighted lens; may no longer reflect the new reality.
It’s old thinking. Instead, investors should be turning their minds to attractive ways to play the world’s mega-shifts, while giving themselves the flexibility to respond to world events and opportunities in this information age.
This is where the nuances in world markets become key differentiators in how much value an investment vehicle can deliver.
Capitalising on the differences between market sectors requires investors to take a granular approach to building global portfolios, in so doing maintaining all-important diversification and flexibility.
To this end, many advisers are seeking a more dynamic asset allocation approach to take advantage of the many global developments and thematics which can be deeper and different from those of the past, therefore underpinning the value proposition they offer their clients.
Advisers and investors increasingly recognise that it no longer makes sense to divide the world according to the black and white of geographies or economies.
Rather, they need investment options that allow them to pick and choose from a wide range of opportunities that reflect the subtleties at play.
That includes the implications of investing in a developed world with deep and liquid markets but facing serious macro headwinds; and in an emerging space with less mature markets but a growing consumer sector and fewer economic headwinds.
Against this backdrop, for advisers seeking to deliver global expertise and value to clients, a highly workable – and eminently scalable – option is to use a combination of ETFs that provides diversified exposure at this more granular level.
What does this new approach look like in practice?
At iShares, we are seeing an increasing number of advisers mixing and matching their investment options including opting for ‘pair trades’ – choosing two ETFs which, between them, offer the breadth and depth of exposure to the key opportunities they see for their clients.
So for example, we see advisers blending the iShares Global 100 ETF (IOO) which provides exposure to leading global mega-cap companies’ strong balance sheets and profitability; along with the iShares MSCI Emerging Markets ETF (IEM), taking a view on these countries’ roles as the engines for global growth. Two funds, that can be traded and settled in AUD on the ASX, accessing different global thematics (see Graph 1).
In my view, any investment approach which claims to access global opportunities without providing a concomitant level of diversity and choice might well be half-baked – or at the very least puts a cap on the ability to fully realise the opportunities it’s designed to promote.
As investors increasingly realise that a home bias may see them missing out on the outcomes they need, advisers are likely to receive more enquiries about how to best access the world.
While the response will differ depending on the client concerned, it’s safe to say that in the new world order, it is no longer adequate to divide the world along traditional lines.
It is time to start exploiting this new world order and to view opportunities through more granular lenses.
Mark Oliver is the head of BlackRock retail business Australia.
