Global Investment Opportunities in 2022

We live in a really beautiful country and have a very lucky economy. I, for one, consider myself extremely fortunate to be able to call myself an Australian. This doesn’t mean however, that investors should leave their capital in Australia.

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Australia is nothing but a big mine and a big farm. As an economy, we do nothing but dig big holes out of the ground, mine resources, stick it on ships and sell it overseas. Alternatively, we’ll grow crops on the ground, strip them off, put them on ships again, and export them overseas.

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The other big contributors to our GDP or economic growth in Australia are:

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• The construction industry: which is directly leveraged to the banking sector
• Services to mining and agriculture
• We might import a great deal of education and tourism with a weak currency.

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The fact is Australia produces a very limited number of goods or services the world relies on. As an economy, we are very internally focused.

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As investment advisers in Australia, what we’ve learnt is that our clients (and ourselves for that matter) should be investing in a reliable company that delivers goods or services on a global scale – rather than on a solely national level.

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It’s a very simple theory: if you invest in a company that provides value to a significant portion of our world, the company itself is perceived as more valuable.

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More often than not, this company’s share prices will rise rapidly because of their value and how they cement themselves as “essential” around the globe.

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This is why at EW Wealth, we emphasise the importance of allocating large amounts of money to overseas markets.

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Quite some time ago, I vividly remember during my previous employments constantly having arguments with other advisers, investment managers and market researchers over global asset allocations.

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At one particular bank, if a client’s risk profile was categorised as a ‘growth’ client, the bank’s recommendation was for clients to allocate only 15–20% of their investment capital overseas. This is because they perceived far too much risk in investing money internationally due to currency fluctuations.

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Across the Australian investment industry, the approach remains concerningly similar.

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At Emanuel Whybourne, we guide our clients differently

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We don’t really care about what the currency does or how it moves. The currency will move in accordance with the underlying strength of the economy.

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Similar to the analogy of the tail wagging the dog, the currency will do what it wants to do, and as individuals, we can’t influence what a currency does.

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Over the longer term, a currency will find its fair value and it will not drive the returns of a long-term strategic investment portfolio.

What is a global investment strategy and why is it important for investors to consider international investments?

It is very important for Australian investors to consider investing outside of their own backyard.

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Australian investors actually carry some of the largest home bias in the world when they consider investing.

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Naturally in life, if you have not done something in the past, it is perceived as carrying more risk. The same can be said for investing.

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The fact is, however, investing in global markets opens the doors to performance success.

‍More than 98% of the world’s investment opportunities are outside of Australia.

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Around 20 years ago, we at Emanuel Whybourne, decided to flip the average asset allocation on its head in comparison to other investment advisory firms and peers.

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In the last two decades, close to 80% of our client’s money is invested out of Australia. You might be asking “Why would we do this?”. Our average client has significant assets in Australia that might be exposed across private business, commercial property assets and industrial property assets.

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If you have most of your money exposed to the Australian economy already, why should you have your superannuation fund and passive capital also invested in the same economy when global economies present higher growth opportunities?

What returns can you expect from international investments?

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International markets can offer investors significantly more diversification opportunities than remaining in Australia. It’s not uncommon for us to see a new client referred into the door by their accountant, a colleague or their family.

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The most common approach that these clients will take until we advise them is almost wholly Australian. They will have almost every dollar in their super fund exposed to the Australian share market, Australian banks, and other Australian resources.

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We take a very different approach. We’ll also focus on rebalancing that portfolio to achieve significantly greater returns with a lot less risk. That is what diversification can achieve for clients.

Common Misconceptions About Investing Internationally

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• There is also a common misperception regarding tax implications globally. Back in the 80s and 90s, Australian investors were potentially taxed at higher rates for investing overseas – that no longer applies.

If you are an Australian tax resident, you will be taxed in your country of tax residency. So, investors are not charged any higher tax by investing offshore.

• Another common misperception for investors is that the income (or dividends) paid by investing overseas is lower as well. That is not true as well.

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Income or dividends paid by an investment portfolio are typically linked to the underlying interest rate in that economy. Interest rates in Australia are currently sitting at 0.25%; interest rates in the US and Europe are at very similar levels. For that reason, dividends and income and overseas markets are very similar to that of Australia.

Australian Investment Returns vs. International Investment Returns

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As an investor, and even as an investment advisor, we can never predict your return. The easiest way to try to attempt to predict the return is by looking at historical returns.

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The historical return differences of international market performance vs. Australian markets are staggering.

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For example, if a decade ago, an investor had $1 invested in the Australian stock market, their performance was quite strong – returning around $2.20 (plus dividends).

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If the very same investor instead invested that $1 in international markets – in this case, the global MSCI – they would actually see a return of over $6 (plus dividends). This is a return of almost 3x greater than Australian markets – over only a short decade.

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This only confirms the idea that most – if not, all – of the investment opportunities are overseas.

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In this case, we’re not just simply referring to what is known as the FANG stocks (Facebook, Apple, Netflix and Google).

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Most of the world’s manufacturing and pharmaceutical companies lie in Europe.

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Most of the world’s technology companies lie across the US.

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There’s also a number of key companies we invest in across Asian markets – Japan, China and emerging markets including India.

How do investors access global investment markets?

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There are a number of ways to access global investment markets. A lot of investment advisory firms will allocate clients’ money to managed funds. They’ll also allocate money to products called ETFs (exchange traded funds).

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In our case, we will very rarely ever invest in managed funds or ETFs. We build quite a sophisticated product called an SMA (a Separate Managed Account). We have around 20 of those agreements in place and with each agreement, we are committing around $50 million per agreement to who we honestly believe are the world’s top 20 performing investment managers.

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They then provide our clients access to all of their investments directly – rather than indirectly through a managed fund. This ensures all our clients are able to access the world’s top investment talent, while also saving significantly on fees. In most cases, the fee reduction is between 50% to 80%. Additionally, our clients are not charged any performance fees.

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One of the most important things for us is to ensure all of our clients’ money is liquid and transparent. This means if a client wants to move money around the market, or change their asset allocation, we know that we have complete liquidity on a client’s portfolio every Monday to Friday.

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By investing overseas, it allows our clients to achieve a greater return with a lot less risk. At Emanuel Whybourne, we continue to strongly believe the outperformance of international markets will continue for the coming decades and beyond.

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If you’re looking to invest internationally using Emanuel Whybourne’s philosophy and international investment strategy, we would be delighted to work with you.

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You can contact us here.

Regards,

Craig

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