Small enterprises are increasingly likely to be sold or folded with the owners’ offspring showing less interest in taking over the reins. It’s a dire situation compounded by many failing to have a retirement strategy.
Many investors chaff at the notion of sitting on “idle dough”; there’s a strong temptation to “do something”. But being liquid – and patient – proffers the opportunity to make the right investment decision at the right time.
Infrastructure disappearing act highlights existential risk of home bias
While every self-directed investor knows that Australia’s sharemarket represents just 2 per cent of the world’s listed companies, investing into overseas markets remains a bridge too far for most. ASX-listed exchange-traded funds remain the most popular, however, the likes of iShares S&P500 (ASX: IVV) is gaining in popularity.
The most common concerns cited by prospective investors are that global equities are higher-risk, introducing currency risk for example, or that they are ‘over-valued’ based on anecdotal evidence or recent headlines. Add to this the fact that most online trading platforms have very poor-quality international trading options, and it likely is easier to do nothing.
However, recent events in the domestic infrastructure sector are offering evidence into what the future, and perhaps the recent past, looks like for growth-starved investors. In a recent white paper, Ausbil’s Global Essential Infrastructure team covered the seeming desertion of global quality infrastructure companies from the ASX.
In just the last few months, Sydney Airport (ASX: SYD), Spark Infrastructure (ASX: SKI) and AusNet Services (ASX: AST) have received takeover offers, each of which will either take them private or reduce the options available to investors. From a peak of 15 infrastructure companies in 2005, there are now less than ten and the trend is clearly moving towards zero.
The solution, Ausbil suggests, is to look global. And the same case can be made for the DIY investors who have limited their universe to the old-fashioned ASX blue chips. A cursory scan of the S&P/ASX50 and to be honest, there isn’t much to write home about. On the one hand, we have four great banks, better known for their dividends than their ability to fight off the wave of fintech disrupters eating into their profit margins. We then have three iron ore miners, a global leader in the healthcare space and one technology company that has benefited from the boom in residential property.
Thinking about investing and diversification in its most simple form, and most would suggest holding an investment in each of the 11 major sectors of the economy. Yet building this sort of portfolio solely from the largest companies listed on the ASX is exceedingly difficult. Not so if you look overseas.
While Australia bats above the average in terms of global leaders, with CSL (ASX: CSL) and BHP (ASX: BHP) the standouts, years of investors focusing on income has seen our best and brightest head to global markets. The US market is flush with global leaders in everything from technology, to computing, healthcare and financial services. Europe, despite the slow recovery from the GFC, is also home to some of the world’s leading global brands, manufacturers and machinery companies. And that’s without mentioning China.
Fortunately, the excuse of it being too difficult or too risky to invest overseas is gone, with a plethora of options available to investors. The first choice is generally the direct purchase of global stocks, which requires a more advanced trading platform, but extends into a growing range of active and passively managed exchange traded funds. Old-fashioned managed funds remain the most popular option, with the mFunds platform offered by the ASX gaining traction.
The timing couldn’t be better for investors given that most SMSF portfolios remain overweight to domestic over global shares, but particularly in comparison to the ‘smart money’. Institutional investors like AustralianSuper and the Future Fund have had equal if not larger global weightings than domestic for many years.
