This article was produced in partnership with Colonial First State.
When it comes to investing, Australians are a patriotic bunch with a tendency towards home bias – investing primarily in the domestic market.
Colonial First State’s recently released whitepaper International Investing Through Managed Accounts points to the benefits that international managed accounts can offer by cutting through complexities via international portfolio managers who are experts in both developed and emerging markets.
Australians hold 58 per cent of their equities in local markets, despite Australia representing less than 2.5 per cent of the global market. This means client portfolios which focus exclusively on Australia may miss out on some of the world’s best investment opportunities.
For example, the advertising “rivers of gold” which powered domestic media companies like News Corporation, Nine Entertainment and Seven West Media, have substantially seen these revenues depart Australia only to be booked in the global advertising businesses of Apple, Alphabet, Amazon and Meta Platforms.
The opportunities are clear – in the US the top ten largest companies by market capitalisation all have global revenue lines. In contrast, only four of the top 10 largest companies in Australia have genuinely global revenue lines.
According to Sandstone Insights, a research platform for institutional investors which is part of MST Financial, global equity investing can provide a broader range of investment opportunities with different risk-reward characteristics relative to Australian equities.
There are also a range of other considerations – what countries, sectors and companies? How do I trade efficiently? Just as you would rely on a GPS to find your way when lost, it’s prudent to seek expert guidance when navigating the myriad possibilities in the world of international investing.
International managed accounts on CFS Edge give advisers and their clients easy direct access to global markets while benefiting from the efficiency of a managed account structure through world class global equity managers T.Rowe Price, CBRE Investment Management, ClearBridge, and Lazard Asset Management.
Exposure to global equities does introduce a new layer of risk with exchange rate volatility. CFS Edge also offers a unique multi-currency wallet allowing clients to hold and transact in a foreign currency and set their income preferences to retain dividends and distributions in the currency for which a stock is traded.
For example, if a client is holding Apple, they can retain the USD dividend in their multi-currency wallet and not incur FX transaction fees. Combining the efficiency of a managed accounts structure with being able to trade in the stock native currency via a currency wallet leads to unrivalled benefits for investors.
Technology
Data from Sandstone Insights shows the US S&P 500 is dominated by technology, with a 30 per cent headline sector weight. Many technology companies like Amazon and Alphabet reside in the communications services sector, so the underlying ‘technology-like’ exposure with the S&P 500 is closer to 50 per cent.
Characterised by their influence and technological innovation, the Magnificent Seven stocks – Apple, Nvidia, Microsoft, Amazon, Alphabet (Google), Meta (Facebook), and Tesla – have lured investors keen to capitalise on the growth in sectors including AI, electric vehicles and cloud computing. The US Technology index is expected to deliver almost 25 per cent earnings per share growth in 2025, which sets up US technology names to deliver another year of double-digit compounding earnings growth.
Technology-related growth also spills over to other sectors. US utilities should also deliver higher-than-average earnings per share growth in 2025 driven by the linkage to power prices/volumes through the growth in US data centres. The business models of the large US technology companies are globally scalable, drawing in global revenues rather than just US revenues, helping drive higher earnings growth.
Global Infrastructure
Global infrastructure is still a relatively young asset class. But according to alternative asset platform Preqin and the Global Listed Infrastructure Organisation, assets under management for this sector grew 18 per cent in the ten years to 2023.
Global infrastructure provides exposure to key investment themes, potentially including decarbonisation and replacing aging infrastructure. Geopolitical tensions and incentives are leading to an increasing amount of nearshoring and onshoring, which should further support infrastructure. This sector is also set to benefit from higher electricity demand from AI powering data centres.
John Lockton, head of investment strategy at Sandstone Insights, sums it up well by pointing to global equities providing a broader range of investment choices, with sectors and ultimately investment themes unavailable in Australia. The CFS whitepaper also notes that international market exposure also spreads risk across industries, asset classes, and economic cycles while offering growth opportunities.
International managed accounts are not just an investment option. They are a sound strategic move for Australian investors looking to diversify their portfolios and capitalise on global opportunities, and a game changer for licensees and advisers looking to create efficiencies and drive growth.