FOR those who know how, the world is a market place of investment opportunities well within reach of the ordinary Australian investor.
However, most investors’ portfolios don’t reflect this reality: their portfolios are typically dominated by Australian assets.
With the Reserve Bank of Australia cutting rates for the third time this year, retirees who are more interested in income than growth are also finding their choices limited.
The appeal of offshore investing is that the opportunity-set is much wider and much deeper.
For growth, you can invest in sectors such as wireless communications, supply-chain logistics, technology and electronic gaming that have little presence in Australia. Companies like Prologis, Apple and Tencent are all listed on overseas exchanges.
For income, you can invest in a wide range of offshore property and infrastructure companies.
These have steady cash flows that are often linked to inflation and mandated by government regulation, offering reliable income to investors.
Moreover, infrastructure assets are frequently large and – with high barriers to entry ensuring little or no competition – protected by a much desired “moat”.
The US, Europe and Asia offer property-investment opportunities not readily available in Australia, including hotels and resorts, healthcare, self-storage and data warehouses.
Many Australian investors are unaware how easy it is to access these opportunities.
This is where exchange-traded funds (ETFs) rise to the challenge.
Listed on the Australian Securities Exchange (ASX), ETFs offer investors easy access to a cost-effective, transparent, liquid and diversified portfolio of investments.
ETFs can be traded throughout the ASX trading day like shares.
They provide the ideal investment vehicle to navigate beyond Australian shores to access a plethora of growth and income opportunities.
Professional investors mix together onshore and offshore assets, in part to achieve the benefit of diversification.
A happy medium
Global property and infrastructure assets have been among the best performing in recent times, delivering returns of between 15 per cent to 20 per cent over the year to September 30, 2019.
Of course, it won’t be like this every year but this is an example of a benefit of diversifying.
The dividend yields for global property and global infrastructure are attractive.
As at September 30, 2019, for the widely regarded global infrastructure and international property benchmarks, the 12-month trailing dividend yields are 3.43 per cent and 3.75 per cent respectively.
Both indices are hedged into Australia dollars for an important reason.
Foreign investments are usually held in the currency of the country of origin but an Australian investor will need to spend their return in Australian dollars.
Investing offshore exposes investors to the risk of exchange-rate movements.
A rise in the Australian dollar can generate a drop in the income received from, and the value of, international assets.
Hedging to remove the volatility particularly makes sense for investors seeking income because stability is one of the things they are looking for – a bit like travel insurance, it’s something you like to take when you go offshore.
Better than banks?
Many of these investors are questioning the Australian banks’ ability to maintain their dividends.
The income characteristics of property and global infrastructure investments make them an alternative that these investors should consider.
There are global trends favouring the idea of increasing demand for infrastructure and property including population growth, urbanisation and increasing trade.
More recently, long-running fiscal deficits and slowing economic growth have created the need for governments around the world to spend on new construction and to privatise existing public services.
Different investors would use these assets to a different degree depending on several factors, including their investment goals and objectives, age and risk tolerance levels. This is where a financial adviser or stockbroker can help, with specific portfolio construction advice or for information on ETFs more generally.
Arian Neiron is the managing director and head of Asia Pacific for VanEck.
The information provided is the opinion of the author. The AJN recommends that readers seek independent financial advice.