Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 261

Finding opportunities in listed global funds

Much has been written about the fact that Australian retail investors’ portfolios are heavily weighted to Australian equities, despite the domestic market representing a small proportion of global equity markets. It is not difficult to understand the reasons for this home bias given the benefits of the dividend franking system in Australia, the difficulties of direct investing in foreign markets and currency risks associated with offshore investing. The universe of global equity investment opportunities is vast, but researching and selecting the right shares to invest in is a challenging task for the average investor.

Plenty of ETFs and LICs on the ASX

There are numerous indirect options for Australian investors to gain international exposure, in both managed and passive form. Many Exchange Traded Funds (ETFs) offer global exposures, usually as ‘passive’ investments designed to track the performance of a certain index, but increasingly in 'active' form. There are also a large number of unlisted global managed funds.

For investors looking for actively-managed international equity exposure with the benefits of ASX market liquidity, there are an increasing number of listed investment companies (LIC), listed investment trusts (LIT) and active ETF options. Our tables (annexed at the end, or see the full monthly report) list the 27 LICs and LITs which invest solely in international equities (excludes those with blended portfolios of Australian and international shares), and the 18 active ETFs with international share strategies. We do not cover or provide ratings for any of these Active ETFs, so our data is for information only.

In our tables, we split the 27 international-focused LICs and LITs into different categories according to their investment strategies. There are 13 LICs/LITs that have diversified global portfolios, five with emerging markets exposure and seven with specialist strategies. There are also two Watermark absolute return funds that are predominantly invested in global equities.

The majority of the international LICs/LITs are trading at discounts to pre-tax NTA and at the end of May 2018, the average discount was 7.4%. Platinum Capital (ASX:PMC) was the only LIC trading at a significant premium of 14.0%. It is unclear why so many of the international LICs/LITs are trading at discounts and, in our view, this provides a good opportunity for investors to add international exposure to their portfolios.

[Register for our free weekly newsletter and receive our latest ebook, Cuffelinks Showcase]

Recommendations on nine LICs/LICs

IIR covers nine of the 27 international LICs/LITs at present with more to come. The table below lists these nine entities showing premiums and discounts at the end of May 2018. We have also added WAM Global, which listed at the end of June.

Click to enlarge

For those LICs/LITs with options on issue, we have calculated an options-diluted premium or discount. There are only two LICs/LITs trading at small premiums. We view all the LICs/LITs on the list as suitable investments at current prices, although those at larger discounts represent better value. In our May 2018 LMI Monthly Update we wrote about WCM Global Growth (ASX:WQG) (formerly Contango Global Growth) which we believe represents good value at a 10.6% discount to option diluted pre-tax NTA (the discount has narrowed since the end of May).

For investors looking for a well-diversified portfolio of international equities, it is hard to go past Future Generation Global Investment Company (ASX:FGG), a fund of funds LIC. It invests in a portfolio of 15 funds managed by Australian fund managers who forgo management fees so that the LIC can make a 1% annual donation to charities. The charity donation is less than the fees that the managers would normally charge, with the difference being to benefit of investors in FGG. The managers also forgo performance fees, also to the benefit of investors in FGG. The portfolio is well-spread across geographic regions and has a mix of large, mid and small cap exposures. FGG shares were trading close to pre-tax NTA at the end of May.

Magellan Global Trust (ASX:MGG) is the largest of the global listed managed investments. It primarily invests in large international companies and has a high weighting in US technology companies. Pengana International Equities (ASX:PIA), Ellerston Global Investments (ASX:EGI) and the newly listed WAM Global (ASX:WGB) all invest in mid and small-cap shares, providing a point of differentiation. PIA also offers the benefit of a high, fully franked dividend yield.

This article provides a brief overview of the international LMIs (LICs) that we cover. For more details we encourage investors to read the individual two-page profiles in our recently published Listed Managed Investments Quarterly Review (attached here).

 

Peter Rae is Supervisory Analyst at Independent Investment Research. This article is general information and does not consider the circumstances of any individual.

 

LICs & LITs which invest solely in international equities

Active ETFs with International share and security strategies

RELATED ARTICLES

Latest LIC and ETF updates

Five famous investors with cheap listed funds

Fixed interest LIT carnage makes stamping fees worse

banner

Most viewed in recent weeks

11 lessons from my lousy $50K profit on Afterpay

Afterpay listed at $1 in 2016 and traded recently at $70. How should an investor treat a small holding in a 70-bagger when each new level defies the experts? Should true believers let the profits run?

How much bigger can the virus bubble get?

Stocks have rallied hard creating a virus bubble, but will this run for years or collapse in a matter of months? The market is giving a second chance to leave so head for the exit before there's a rush.

Which companies will do well in the turmoil of 2020?

While the shutting of Australia’s borders to international travellers and quarantine measures is damaging to certain sectors of the economy, it is not uniformly negative for all companies.

Share trading is the new addiction

The ability to buy and sell cheaply and quickly in small parcels is both the biggest drawback and benefit of shares. But it encourages people who should not go near the market to use it as a casino.

What is happening with SMSFs? Part 1

Taking a realistic view of the median ‘operating expense’ of an SMSF shows they cost less to run than previously claimed. Look at this granular breakdown and see how the costs of running your SMSF compare.

Why are we convinced 'this time it's different'?

Investors tend to overstate the impact on investments when something significant happens and they assume the future will be different. COVID-19 has been dramatic, but is it really that unusual?

Latest Updates

Investment strategies

11 lessons from my lousy $50K profit on Afterpay

Afterpay listed at $1 in 2016 and traded recently at $70. How should an investor treat a small holding in a 70-bagger when each new level defies the experts? Should true believers let the profits run?

Shares

How did shares perform in FY20 and where to from here?

Compared with most years in the last decade, FY20 performed poorly due to the virus, and now dividends are falling. There are three things to watch this year as support policies are wound back.

Shares

Which companies will do well in the turmoil of 2020?

While the shutting of Australia’s borders to international travellers and quarantine measures is damaging to certain sectors of the economy, it is not uniformly negative for all companies.

Investment strategies

Six types of big data are unlocking real insights

Data science is increasingly embedded into the research process of investment teams with the resources to exploit new technologies. The way the data is integrated and interpreted is crucial.

Investing

Will value stocks benefit from the market's inflection point?

As the world gradually emerges from the aftermath of COVID-19, many are questioning if now is value’s time to shine? How can value stocks deliver outperformance in today’s environment?

Fixed interest

Less than 1% for 100 years: watch the price risk on long bonds

Do you think investors can only lose heavily on bonds if the credit defaults? When bondholders accept 0.88% for 100 years, there is great potential for serious pain somewhere along the journey.

Economy

Five industries profoundly changed by COVID-19

Even when the virus is finally contained, the business landscape will look very different. A critical issue is the ability of consumers to find product substitutes. Many people like what they find.

Exchange traded products

Wirecard shows not all ethical ETFs pass the smell test

The strictness of screening processes can vary between ethical ETFs, and many rely on indices without additional oversight. This can result in stock inclusions that may not pass the ethical ‘smell test’.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.