It's hard not to notice that New Zealand is a very small market. By sticking with NZX-based investments and funds you could miss out on companies that dominate major industries.
Just take mining. Here in New Zealand we have the likes of mining stocks such as Oceana Gold, or Heritage Gold NZ. They're not quite global greats like BHP Billiton, Rio Tinto or Anglo American.
Here we're inclined only to buy Australasian stocks and funds. It's a natural human trait to go for what we know and ignore the rest. Yet it's a risky strategy limiting investments to one small market. The key reasons to invest globally include:
- If the NZ economy sours more than other economies you may get better returns from your global investments
- You are diversifying geographically and perhaps across investment classes
- Most of the world's leading companies are based in overseas markets. For a list of those companies, visit the FT.com.
The options for buying are threefold:
- Direct equity investments through a New Zealand or overseas stockbroker
- Managed funds
- Exchange traded funds.
I notice a whole number of funds on the Raboplus platform that offer exposure to certain foreign markets. They range from broad funds such as the ING International Share Fund, which invests across North America, UK, European, Japanese and emerging share markets, to more specific funds such as the Tower Spotlight Asia Fund and Tower Spotlight Europe Fund.
Not all global funds are created equally. And some do better in different economic environments than others. It's always important to check the percentages invested in different markets. One Asia/Pacific fund I looked at had more than 30% of its investments in Australasia.
As Helen McKenzie, head of distribution at Tyndall points out, emerging markets may be better at times than developed world markets: "On the global side, emerging markets could well do better than global, as they do not have the toxic financial assets (which are still deleveraging) that the US, UK and Europe have".
That doesn't necessarily mean going for smaller companies. Among the FT's top 50 companies are some based in China, Russia, Brazil, and Saudi Arabia.
Buying globally isn't just about access to a wide variety of companies in different sectors. You may, for example, want an exposure to commodities, precious metals, or major telecoms brands. It's possible to buy into NZ based funds that offer such exposure, such as the Tower Global Commodities Fund. For some sectors such as silver you may need to head overseas for funds such as the Barclays iShare Silver Trust, which trades on the New York Stock Exchange.
The downside of investing offshore is the currency risk. What's the point of getting a 6% return on an investment if the NZ dollar jumps by 10%? You're worse off. The answer to that in part may be to buy funds that are hedged back to the NZ dollar. But if the dollar is falling, you may wish you hadn't.