Investors everywhere should consider sending some of their portfolio overseas on an overseas break. Yet too often Kiwis are focused on investing in Australasia alone.
Some investors view anything outside our downunder shores as the Wild West. Yet despite the gyrations of North American and Western European economies in recent years they offer an awful lot of diversification away from a small and occasionally fragile economy that New Zealand offers.
Ken Applegate of Fisher Funds
Overseas Investing: Financial Straight Talk
Smart Money - Investing Abroad!
It’s worth remembering that we don’t really have any “large” companies in this country. Even a “giant” blue chip companies such as Telecom with a market capitalisation of NZ $4.7bn is an absolute minnow compared to the likes of Exxon Mobil Corporation, Apple Inc, PetroChina, and Royal Dutch Shell, which are measured in the hundreds of billions of dollars.
There are also classes of investment that simply aren’t available here – at least in large enough quantities to make diversification possible. That includes commodities (we’ve hardly got a huge mining sector, for example), alternative energy and infrastructure. The world leaders and even the also rans are all based overseas.
The one area where we do hold our own: dairy exports, is largely sewn up by Fonterra, which isn’t a listed company, so the average Kiwi can’t invest in it.
Our economy being small is less robust than many and could be very badly affected indeed by anything from local or world political events to a Christchurch-type earthquake or other natural disaster in Wellington, for example.
Investing overseas can help you capitalise on the strength of the New Zealand dollar. But beware. You’re more or less betting on the dollar, the yen, the Yuan or the Euro. Ouch.
That risk is that the Kiwi dollar will yo-yo, which it’s inclined to do and that when you need to sell the investment the dollar has risen even more and you lose out. Long term investors and those that drip feed money in are probably better off as they can bide their time, providing they can stomach the roller coaster ride.
There is also the risk of poor financial reporting, the spectre of foreign government intervention in companies’ affairs and a myriad of foreign taxes charge to investments. They’re not a reason, however, to shrink into your shell and stay at home.
It’s worth being aware than many New Zealand-based international funds do what’s called hedging back to the Kiwi dollar. This strategy attempts to smooth over any rises and falls in the currency by buying when the exchange rate is favourable.
Finally, investing overseas, as I mentioned in the most recent RaboDirect Active Money, isn’t limited to equities. There are also opportunities to diversify the property, and fixed interest portions of your portfolio.
Hedging your bets
Investment safe havens
Fisher Funds International Growth Fund
OnePath International Share Fund