Australian investors are increasingly aware that their home-country bias to domestic equities is hurting them, according to Vanguard senior investment analyst Paul Chin.
In the last six months, investors have boosted their allocation to international and emerging market equities, he said, indicating a growing desire for, and understanding of, the return and diversification benefits of global assets.
“In the second half of 2013 we saw a rise in investor confidence and a shift towards growth assets,” Chin said. “Investors have noticeably been using exchange traded funds to gain that exposure, and we’re having more conversations with advisers about global equities and emerging markets. They understand that international assets can provide enormous diversification benefits.”
Chin said passive investment strategies, such as ETFs and index funds, were an “easier” way for investors to transition from defensive assets such as bonds and term deposits into growth assets.
This was confirmed by the latest AMP Multiport SMSF Investment Patterns Survey, which showed self-managed superannuation funds have reduced their allocation to cash for the last five consecutive quarters while increasing their exposure to equities and ETFs.
Despite a slight dip in allocations to international equities in the September quarter, the report found 13 per cent of overall international holdings are now held via ETFs.
AMP SMSF Administration head of technical services Philip LaGreca said SMSF exposure to international equities during the September quarter should’ve risen in line with indices just as the overall allocation to Australian equities increased to 39.4 per cent from 37.5 per cent due mainly to the increase in the All Ordinaries.
However, concerns about a potential downturn in the US economy stalled inflows, he said.
In the second half of 2013, Vanguard’s most popular funds were the Australian Shares High Yield Fund, US Equity Index Fund and the All World ex-US Shares Fund.
In November, Vanguard launched the Vanguard FTSE Emerging Markets Share Exchange Traded Fund, the group’s tenth ETF in Australia.
With a management expense ratio of 48 basis points, the fund is the lowest cost emerging markets ETF on the ASX. It offers access to over 920 listed stocks from 22 emerging economies.
“Emerging markets had a strong run in the lead up to 2013 off the back of strong economies and solid growth prospects but that has reversed with a question mark over the sustainability of that growth,” Chin said.
“However, we still believe investors should have a strategic allocation to emerging markets.”
Last week Vanguard also announced the internal appointment of Jeffrey Johnson to lead the group’s Asia Pacific Investment Strategy and Research team.
Johnson will oversee a team of four senior analysts and economists with responsibility for providing research and commentary of topics including portfolio construction, asset allocation, tax and economic trends.
