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Short ‘n’ sweet – going global

by Penny Pryor

Although SMSF asset allocation data suggests that SMSF trustees don’t have much of an interest in international shares, we still get a lot of questions from subscribers about this very thing.

“I am wondering whether you would be inclined to invest money in a global fund or buy shares with global exposure. Could you also recommend any global equity funds or shares with global exposure and maybe suggest what percentage of a typical SMSF you would invest in such funds or shares,” is just one such question.

In response, Switzer Super Report director, Paul Rickard, said: “While there is always a debate about how much to allocate to overseas markets, with an expectation of a falling Aussie dollar and recovering global economy, I think there is still some value in allocating money to these markets.

“The standard portfolio allocation models have a lot higher weighting to overseas equities than we prefer for SMSFs, mainly because they don’t consider the tax advantages from franking credits. Accordingly, we typically recommend around 10% to 20% of your total fund rather than some models that are as high as 35%. Clearly, different funds have different needs to meet for their members and different expectations about risk and return – so there is no normal.”

It makes sense

Australia represents less than 3% of the entire global share market. So, for true diversification, it makes sense to go offshore. But what’s the best way to go about it? Do you use a managed fund, an ETF or buy directly yourself?

Barrie Dunstan wrote about the importance of including international shares in your portfolio late last year. He also touched on how you can access global markets through exchange-traded funds or ETFs.

If you want to do it yourself, some online brokers now allow it, and costs have come down.

CommSec offers rates of around $US65 per trade (or 0.75% which ever is greater), while E*Trade is $59 per trade (or 0.59% whichever is greater).

Check out the costs here.

Tax implications

If you are buying US shares directly, and will receive income from those investments, tax is usually deducted and withheld at a rate of 15%. You will generally be able to claim an offset in Australia for the tax that has been withheld.

You need to complete the W-8BEN form – a form from the US Department of Inland Revenue, which certifies you’re not a US resident – extra tax will be deducted, so make sure you complete this before you start trading.

We’ve also covered funds that offer good international exposure if you don’t like picking the stocks yourself.

But if you are more of a DIYer with your shares, here are what the professionals think of three global stocks.

Chicago Mercantile Exchange Group

Source: Yahoo

“Chicago Mercantile Exchange Group has a near monopoly position and faces no viable competition in the medium to long term, which, combined with an intrinsically high return business model, makes it an attractive long-term investment,” fund manager at PM Capital Uday Cheruva said in a November Fundie’s Favourite.


Source: Yahoo

Stratsys manufacturers and distributes 3D printers and earlier this year Australian Ethical portfolio manager Nathan Lim said: “Through a combination of strong organic growth and strategic acquisitions (most recently MakerBot, which now secures Stratasys’ position in both the commercial and retail market), the company has the potential to maintain double-digit growth rates for several years.”

The company’s share price has risen steadily since he said that in June.

Crocs Inc

Source: Yahoo

In April, we had a Fundie’s Favourite from Morphic Asset Management founder Jack Lowenstein on Crocs Shoes, and although the company had a big dive on poor results in August, it has since rebounded, following the announcement that CEO John McCarvel will step down, and Blackstone Group has taken a $US200 million stake in the group.

“Given that it has been close to five years since Crocs fell from grace, we believe it is time for investors to start paying more attention to the turnaround story,” Lowenstein said then.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Published on: Friday, January 17, 2014

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