Investment Ideas


A World of Opportunities

The case for diversifying internationally

We regularly hear the rule of thumb 'invest in what you know’, which may make it seem sensible to stick to Australian equities.

But did you know that the Australian equity market represents less than 2.5% of the global stock market capitalisation?1 And that it is heavily concentrated on only two sectors?

Broadening your investment horizon to international equities can open the doors to the potential to earn smoother and/or higher returns as well as other diversification benefits.

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Why go Global?


  1. Expanded Opportunity Set: Australian equities represent less than 2.5% of the global stock market capitalisation.1 By investing in international equities, you can gain exposure to a much more diverse range of companies that are truly representative of today’s dynamic global economy.
  2. Increased Diversification: The local Australian market is heavily tilted towards stocks in two sectors, resources and financials, which together account for over 50% of the market capitalisation of the S&P/ASX 200®.2 An internationally focused ETF can provide greater exposure to sectors, such as Utilities, Consumer Staples and Health Care, as well as high-growth sectors such as Technology, that are relatively underrepresented in the broader Australian market.
  3. Reduced Concentration: Through an investment in international equities, you can spread your risk across many different companies, sectors and countries. So rather than relying on a single economy, which in the case of Australia is relatively small in global terms, dominated by two sectors and concentrated in a handful of securities, you gain exposure to markets all around the world. This results in a more globally representative sector exposure and less reliance on a handful of names. 

Australian equities represent less than 2.5% of the global stock market capitalisation,2 with thousands of international stocks, the opportunity really is too big to ignore.

Diversifying Internationally with ETFs 

ETFs can be a highly effective way to tap into the growth potential of international equity markets, without the complexities of a direct investment.

One of the attractions of investing internationally via an ETF is the broad market exposure offered. This means you are not reliant on the performance of a handful of stocks, rather you have exposure to hundreds or even thousands of companies, some well-known, others not.

Investing internationally also does not necessarily mean higher expenses. Through an ETF, you can gain exposure to perhaps the most famous index of all, the S&P 500®, all at less than 1/10th of a percent management expense ratio (MER).

ETFs also bring a level of transparency that is arguably unmatched in the investment industry. On a daily basis, for many ETFs, you can see what the ETF holds and where the funds are invested.

With a range of international funds, SPDR ETFs allow you to tailor your exposure across the US, international equities, emerging markets and more:

  • The SPDR S&P Global Dividend Fund (WDIV) turns on your income potential. It contains approximately 100 international stocks that have an uninterrupted 10-year track record of stable or increasing dividends. You can gain diversification without excess concentration thanks to sector, country and stock Capitalisation, with a single trade.
  • The SPDR Dow Jones Global Real Estate Fund (DJRE) unlocks the potential of global property exposure. You can access approximately 200 prime real estate securities across approximately 20 countries – with a single trade.
  • The SPDR MSCI World Quality Mix Fund (QMIX) assists in managing market uncertainty. It is a solution that aims to capture gains in improving markets while at the same time mitigating risk during periods of market volatility – upside participation with downside protection.
  • The SPDR S&P World ex Australia Fund (WXOZ) and SPDR S&P World ex Australia (Hedged) Fund (WXHG) delivers international equity market exposure. Each fund contains approximately 1,500 international stocks and provides the flexibility to take or remove (hedge) currency exposure (or a combination), with a single trade (or two).
  • The SPDR S&P Emerging Markets Fund (WEMG) provides diversified exposure to fast-growing markets that are difficult to invest in directly from Australia. SPDR S&P Emerging Markets Fund delivers exposure to China (and its disruptive Technology Services industry), Korea (with its strong Electronic Technology industry), Taiwan (including Electronic Technology and Process Industries), India (Technology Services and Energy Materials), and Brazil (Energy and Non-Energy Minerals).
  • The SPDR S&P 500 ETF Trust (SPY) gives you exposure to some of the most innovative and successful companies in the US.

ETFs provide arguably the most transparent, accessible and cost-effective way to construct portfolios.


Insights


SPDR Bond Compass - Quarterly Report

 

ETFs: a Low Cost, Simple, and Tax Efficient Investment for SMSFs

Typically structured like managed funds, but listed and traded on an exchange like stocks, ETFs are flexible trading and investment vehicles that can be used to help the Self-Managed Superannuation Fund investor satisfy several critical investment needs.

Glossary

Management Expense Ratio (MER): Fee paid to the manager of an investment fund. The MER is normally expressed as anannual percentage or "basis point" charge (where one basis point equals one hundredth of a percent) on the fund's net asset value.


Weight of Australia in MSCI ACWI was 2.41% as of 30 June 2019

Source: Factset as at 30 June 2019

Source: Morningstar Direct, Morningstar Research, as at 31 December 2018.