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.

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 Listed Managed Investments Quarterly Reviews.

 

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

ETFs are the Marvel of listed galaxies, even with star WAR

Latest LIC and ETF updates

Four simple strategies deliver long-term investing comfort

banner

Most viewed in recent weeks

Noel's share winners and loser plus budget reality check

Among the share success stories is a poor personal experience as Telstra's service needs improving. Plus why the new budget announcements on downsizing and buying a home don't deserve the super hype.

Grantham interview on the coming day of reckoning

Jeremy Grantham has seen it all before, with bubbles every 15 years or so. The higher you go, the longer and greater the fall. You can have a high-priced asset or a high-yielding asset, but not both at the same time.

Five stock recoveries not hanging on COVID predictions

The focus on predicting the recovery from the pandemic is the wrong emphasis. Better to identify great companies benefitting from market changes over a three- to five-year horizon with or without COVID.

BHP v Rio v Fortescue: it's all about the iron ore price

Don’t look at an earnings forecast or a DCF valuation or a broker target price for a mining company. Share price forecasts are only as good as the commodity price assumptions they are based on, and they are a guess.

Blink and you missed a seismic shift in these stocks

Blink and it happened. If announcements in this sector were made by a producer of iron ore, gas, copper or some new tech, the news would have been splashed across the front pages. Have we witnessed a major change?

Peak to peak, which LIC managers performed during COVID?

A comprehensive review of dozens of LICs shows how they performed in the crucial 'peak to peak' of COVID. This 14 months tested the mettle and strategies of a sector often under fire, with many strong results.

Latest Updates

Superannuation

Jane Hume shakes up super, but what will it achieve?

The Government calls 'Your Future, Your Super' the most significant reforms since the start of compulsory super. Stapling has benefits and we should remove poor funds, but performance comparisons are difficult.

Superannuation

Launch of the 'Wealth of Experience' podcast

Welcome to the first episode of our fortnightly podcast, Wealth of Experience, with Graham Hand and Peter Warnes. They have a combined 99 years in markets and they will share this experience to help build your wealth.

Investment strategies

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

Investment strategies

Where will investment returns come from in 2021?

There are only three sources of returns when investing in companies. Whether an investment delivers on dividends, earnings or valuation expansion determines performance, and the contribution of each varies over time.

Investment strategies

Portfolio composition and what you find under the bonnet

Powerful structural themes such as technology disruption and demographic changes may disguise what is driving company success. Watch these broad categories as they may not apply in ways you expect.

Investment strategies

When rates rise, it's time to look for new players on the team

Long duration assets such as government bonds and property have benefitted from falling interest rates, but a turn is coming. It's time to find assets that may benefit from rising rates, such as private debt.

Investment strategies

How are high net worths investing and thinking now?

Citi research delves into how high net worth investors are feeling in the current market, and how they are investing during the drama of the pandemic. There is plenty of optimism and a willingness to stay invested.

Sponsors

Alliances

© 2021 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 ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.