International shares offer good opportunities
IT'S a challenging time to be an investor - the Australian dollar is plunging and stock markets are all over the place. But don't let the volatility faze you: this is a great time to look at your portfolio to see if you can improve it.
International shares should be a major part of most portfolios but, sadly, they are one of the most misunderstood. Consequently, many DIY investors have only a small exposure to international shares, or worse, none at all.
There are two major benefits in international investment. The first is a currency gain if the Australian dollar falls in relation to other currencies, as is happening right now. The second is that international investment enables you to increase your diversification.
The Australian stock market is a minute part of world financial markets. It is very volatile in relation to major international markets and has tended to have long high and low cycles.
So an investor unlucky enough to get in at the start of a long downward spiral may have to wait several years for an improvement. But the manager of an international trust can move money at any time around the world into areas that show much more promise.
Talk to your investment adviser when you are selecting equity trusts for investment. Fund managers have different philosophies, and it is important that the thinking of the fund manager matches your needs.
Some funds cater for the investor who likes to have a say in where the money is invested and may offer a choice of sub-funds such as a Japanese Fund.
My preference is to stay in more general types of funds and let the fund managers have the discretion to move the funds about to best attain the investment objectives.
When thinking about investing in share-based managed funds it's helpful to look past the name of the fund and find out exactly where the fund manager is putting your hard earned cash.
For example, the Magellan Global Fund, one of the funds in which I invest, looks for large multinational businesses characterised by wide economic moats, high returns on re-invested capital and sustainable competitive advantages.
Their approach has paid off - the fund has returned +27.3% p.a. to Australian investors for the 3 years to 31 August 2015. Obviously, past performance is no guarantee of future performance, but those results do show the potential that good international funds have.
Noel Whittaker is the author of Making Money Made Simple, and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org.