This article includes the 20 most popular international shares invested in by SMSFs as at 30 September 2018. This article uses data supplied by Class, an SMSF administration software company, and is based on a statistical analysis of the 160,000+ SMSFs administered using Class software. We thank Class for giving SuperGuide access to such valuable data.
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They’re some of the biggest companies in the world, representing the world’s biggest economies and international investing has become an attractive strategy for Australian investors who are looking to diversify their portfolios.
Gaining access to international markets provides opportunities that are not available here in Australia, a country which represents less than 2% of the world’s sharemarket value. The reality is that Australia is a small fish in a very big investment pond and international shares offer a portfolio an element of geographic diversity. The theory is that if the Australian economy heads south, or tanks, your international shares will provide a buffer to your domestic portfolio.
Of course, international shares are subject to currency risk and can be influenced by the Australian dollar value. Time differences can also delay the reporting of key information and the ability to trade on that basis.
Technology companies are the most popular for SMSFs investing directly in international shares, with tech stocks making up 59% of the top 20 investments in international shares.
The top 5 direct international shares held by SMSFs are listed on the NASDAQ: Alphabet Inc (Google), Apple, Facebook, Amazon and Microsoft and this list of tech heavyweights is bookended by PayPal at number 7 and eBay at number 17.
The New York Stock Exchange (NYSE) remains the world’s biggest stock exchange by market capitalisation but the NASDAQ (National Association of Securities Dealers Automated Quotations System) is the world’s second largest. The NASDAQ is an electronic exchange which processes trades through an automated network of computers, instead of a traditional trading floor and this is where most tech stocks are traded.
According to Class’ data, as at September 30 2018, 6.4% of SMSFs held direct international shares, comprising 1.5% of total assets.
While the overall investment level seems low, there are indications that SMSFs are increasing their holdings in international shares, particularly in the blue chip US companies on the NYSE and NASDAQ.
Table 1: 20 most popular international shares invested in by SMSFs
|Rank||Code||Exchange||Description||% of Funds with Int’l Shares that hold this security||% of total SMSF Int’l Share investments|
|1||GOOG||NASDAQ||Alphabet Inc – Class C (A) Shares combined*||17.0%||3.4%|
|7||PYPL||NASDAQ||PayPal Holdings Inc||6.0%||0.8%|
|9||BABA||NYSE||Alibaba Grp Shs Sponsored American Deposit Share Repr 1 Sh||5.5%||0.6%|
|10||JNJ||NYSE||Johnson & Johnson||4.9%||0.7%|
|11||BRK/B||NYSE||Berkshire Hathaway Inc. Classes A & B combined**||4.9%||5.3%|
|14||WFC||NYSE||Wells Fargo & Co||4.1%||0.6%|
|15||LLOY||LON||Lloyds Banking Group PLC||4.1%||0.5%|
|16||BAC||NYSE||Bank of America Corp||3.9%||0.6%|
|18||DIS||NYSE||Walt Disney Company||3.5%||0.3%|
|19||IGAS||LON||IGas Energy PLC||3.4%||0.1%|
|20||GE||NYSE||General Electric Co||3.3%||0.2%|
Source: Class (class.com.au). Data as at 30 September 2018
Chart 1: 20 most popular international shares invested in by SMSFs
Source: Class (class.com.au). Data as at 30 September 2018
Not surprisingly, search engine giant Google, tech retailer Apple and social media juggernaut Facebook dominate the investment landscape for SMSFs looking for overseas exposure.
According to the Class data, 17% of SMSFs with exposure to international shares hold stock in Alphabet Inc., formerly known as Google Inc.
So why invest in Alphabet? Or let’s just call it what it is – Google. A better question might be: why would you not invest in Google?
What started as a college project in 1996, when Larry Page and Sergey Brin wanted to rank web pages, has now become the world’s largest internet search and advertising business which also owns the world’s biggest video streaming website, YouTube.
This is one of the most successful companies which launched at US$50 a share in 2004. They now trade at above US$1,000 a piece, making it a US$750 billion company.
Its P/E ratio is above 40, making it expensive, but it seems almost impossible for most people to avoid using its services, whether they love it or hate it. Google has seen off a slew of competitors by simply delivering better results, and faster, than any upstarts that want a seat on the throne.
Apple Inc actually has a bigger slice of total investments from SMSFs than Google with 5.1% (compared to Google’s 3.4%), while the number of SMSFs that hold Apple is 14.3%.
Apple CEO Tim Cook shocked Wall Street with one of its rare poor trading updates which revealed a drop in guidance for the first quarter of 2019. But Apple is sitting on more than US$200 billion cash which can be used for share buybacks to push the price up, and for R&D to build new products.
It has two main issues for investors to be aware of though:
- Its reliance on the iPhone which accounts for more than 60 percent of sales, and
Disappointing sales have been reported out of China, which was earmarked as a major growth market, and the unstable trade relations with the US remain a major concern.
Facebook, like Google, makes most of its money through advertising and has successfully seen off numerous challenges to its position as the number one social network. It suffered a 20% share price fall, and US$200 billion in value, in the final quarter of 2018 because of the controversy over its handling of users’ data and the policing, or non-policing, of its own content.
And that means that Amazon and Microsoft have been left to battle it out as the most valuable trading company in the US, putting them ahead of Google, Apple and Facebook.
Chart 2: Alphabet, Apple, Facebook and Amazon – Share price performance – previous 12 months
Source: NASDAQ – 12 January 2018 to 11 January 2019
Amazon is the fourth most traded companies for SMSFs buying international shares, but the e-commerce giant is the number one in the US while Microsoft is at number two, although these two are expected to change places at around the US$800 billion mark.
Two of the newbies in the top 20 international shares held by SMSFs are PayPal and Alibaba with 6% and 5.5% of SMSFs investing in these companies.
PayPal split from eBay in 2015 and since then the electronics payment provider has been aggressively pursuing a dominant market share similar to Google and Facebook. They simply want to be the number one option for customers and in the past three to four years all its key numbers are heading upwards – revenue, profit, market capitalisation, earnings per share etc.
According to eMarketer, the number of mobile payment users globally is expected to increase from 721 million in 2017 to more than 1.1 billion by 2021.
And that’s also probably why Chinese company Alibaba is in the top 20. Alibaba is the biggest online commerce company in China, and possibly the world. It’s traded on the NYSE and 5.5% of SMSFs have bought into it in the belief that its transactions will top those of Amazon and eBay combined.
So they’re all the sexy tech companies that often proclaim to change our lives, but what about the boring ones?
Johnson & Johnson, Berkshire Hathaway, Bank of America, General Electric and Lloyds (on the London exchange) are the quiet ones on the edge of the dance floor while the techies jostle for attention in the middle.
Johnson & Johnson’s mission statement is: “We believe good health is the foundation of vibrant lives, thriving communities and forward progress.”
That may cause some to yawn. But for 130 years it’s been a health care company and it’s been very successful. Johnson & Johnson is highly diversified with more than 250 subsidiaries which means it makes money during boom times and can do the same in recession.
Another of the so-called “recession proof” businesses on the NYSE is Warren Buffett’s Berkshire Hathaway which is a multinational conglomerate which owns Duracell, GEICO and Dairy Queen, among many others. It also has significant holdings in the Kraft Heinz Company, American Express, Wells Fargo, Coca Cola and Bank of America.
Along with Bank of America, General Electric and Lloyds, they don’t make a lot of headlines and they don’t produce any surprises during reporting season. They just keep on ticking over and make money in even the most volatile of times.