Demand by Australian investors for offshore assets shows no sign of slowing down, according to the Certitude Global Investing Intentions Index (CGIII). The CGIII, which collates the views of actively engaged Australian investors and measures their net demand for global investments, jumped again in April to a record high.
Following a rise of 15% in March, the CGIII rose a further 5% in April, taking it to its highest level since the Index began in June 2013.
Equities continued to lead the charge, with demand for both Australian and international shares far outstripping that for other asset classes, such as property, term deposits and exchange traded funds. In addition, the net proportion of investors planning to invest in international shares jumped sharply month-on-month.
Demand for most other asset classes remained largely steady, with the exception of term deposits which has been falling since February this year. The downward trend continued in April, with investors again signalling their lack of appetite for this more defensive investment option.
Craig Mowll, CEO of Certitude Global Investments said: “Results from the CGIII in April suggest that far from being influenced by geo-political events, such as turbulence in the Ukraine and its ramifications for global markets, active investors continue to see increased opportunities in international investment markets.
“While it is true that a number of investors expressed concerns about some of the big issues, including instability in the Ukraine and Russia, a slowdown in the Chinese economy and the possibility of another market crash, this clearly did not influence their positive outlook for international markets. In fact, the CGIII revealed that the level of concern about global markets across the board actually decreased in April.
“Given the on-going weakness in parts of the Australian economy combined with the looming prospect of a tough Federal Budget, it is not altogether surprising that Australian active investors, traditionally overweight Aussie equities, are seriously considering a greater allocation to offshore markets.
“This is borne out by the results of the CGIII, which indicated an increasing convergence in demand between Australian and international equities in April. When combined with the fall in demand for term deposits, it appears that investors are gaining confidence with equities, and view them as a suitable alternative to term deposits, which continue to struggle to perform as interest rates languish at historically low levels.”
Interest in multiple region managed funds gains ground
When investors were asked which international markets were of most interest over the next 12 months, the US/North America again came in as the clear favourite, even though the level of interest was down slightly compared with March.
On the other hand, international funds covering multiple regions were once again investors’ second choice, but contrary to demand for US/North America, demand for these funds rose compared with all other markets, the notable exception being emerging markets, which also rose.
In addition, the intention to gain international exposure via actively managed funds increased by 7 percentage points to a record high (46%), compared with direct purchase of overseas shares (38%) which also increased, but only by 3 percentage points.
Commenting on the increase in demand for managed funds investing overseas, Mr Mowll said, “It is interesting to note that as demand for international exposure increases, demand for international funds covering multiple regions has also increased. One explanation may be that investors understand the challenges inherent in trying to be a specialist in every international market. Choosing to invest with an experienced investment manager, capable of structuring a portfolio across multiple regions makes good sense.
“In fact, this hypothesis is supported by the fact that nearly a quarter of all investors said that lack of knowledge was the number one barrier preventing them from investing in international markets. In a further sign that investors are less concerned about market volatility than they have been in the past, lack of knowledge ranked as the biggest barrier to investing overseas in April, whereas market volatility was cited as the number one barrier in March.”
When investors were asked when they intend to next invest overseas, nearly half (41%) of respondents said that they would like to do so within 3 months. This was up from 37% in March.
Mr Mowll concluded: “It is promising to see that demand for Australian and international shares continues to converge over time, showing an increased appetite for offshore investments and a desire for an asset allocation less heavily skewed to Australian equities. It is not surprising investors are choosing managed funds to gain exposure to international markets given their concern about a lack of knowledge and information; an expert fund manager is the best choice to help them make optimum investment choices.”
April CGIII – Key Findings
1. Net demand for international assets increased in April 2014 by 5%, following an increase of 15% in March 2014 – the Certitude Global Investing Intentions Index now sits at 186, up from 177 in March.
2. The net proportion of investors planning to invest in international shares increased to 18% in April, up from 16% in March. Meanwhile, the convergence between demand for Australian and international shares continued, while demand for term deposits continued to fall month-on-month.
3. The US/North America remained the number one market of interest, followed by international funds covering multiple regions. In April, interest in the US/North America fell slightly from 48% to 46% whereas interest in international funds covering multiple regions continued to rise to 32%.
4. Intention to gain international exposure via actively managed funds increased to 46%, up 7% pts) and direct purchase of overseas shares increased to 38% (up 3% pts). Intention to gain international exposure via actively managed international funds is now at a record high.
5. The number of investors intending to invest internationally in the next three months increased to nearly half (41%), up from 37% in March.
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