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They’re some of the biggest and most dynamic companies in the world but there’s a catch – they’re all based overseas. Australians who want direct exposure to their growth need to invest in international shares listed on overseas stock exchanges.
There are good reasons for making the effort.
Gaining access to international markets provides opportunities that are not available in Australia, which represents less than 2% of global share market value.
Australian shares are heavily concentrated in the financial and resources sector, which means local investors are vulnerable to a downturn or negative sentiment in these industries. What’s more, some of the world’s most dynamic and profitable companies, and industries such as technology and pharmaceuticals, are not well represented on the ASX.
International shares also offer geographic diversity. If the Australian market is underperforming, your international shares will provide a buffer to your local equities.
In the year to 30 June 2023, Australian shares performed well (up 14.4%) but international shares did even better, with a stellar return of 18.3%.
Of course, international shares are subject to currency risk. The return on your investments can be influenced negatively (and positively) by the value of the Australian dollar to the currency of the overseas assets you invest in. The fall in the Aussie dollar over the course of 2022–23 added extra lustre to unhedged international shares.
Investors with a relatively small amount of money to invest overseas, or who lack the time or confidence to invest directly, generally opt to invest in international shares via a managed fund or exchange-traded fund (ETF) for low-cost instant diversification.
But increasing numbers of SMSFs with sufficient funds to build a diversified international portfolio of shares, or the conviction to select certain stocks, are choosing to invest directly.
We live in a world where most of us carry a mobile, work on a laptop or tablet, shop online, tap and pay, and spend hours each day checking our social media, streaming or googling information. So, it will come as no surprise that technology giants dominate the top 20 direct international share holdings.
In recent years, this trend gained further momentum from the global shift to working from home and in-home entertainment due to COVID.
The top 20 list in 2023 was led once again by – you guessed it – Microsoft, Alphabet (formerly Google), Amazon and Apple. They were followed by payments heavyweights Visa and PayPal as consumers went on a post-COVID spending spree. Tesla lost a little traction, falling three places. Gaming and artificial intelligence software group NVIDIA cemented it spot on the list as it rapidly gaining popularity with customers and investors.
Other big hitters from the old economy such as Johnson & Johnson, Disney and Warren Buffett’s Berkshire Hathaway are still high on the list.
But in a sign of the times, semiconductor industry heavyweights ASML Holdings and Taiwan Semiconductor Manufacturing Co. made the list for the first time
While the top 20 list below is ranked by the percentage of SMSFs with international shares that hold each stock, the company that attracted the most money was Apple, with almost 8% of the value of SMSF international share investments. The next biggest holding by value was Microsoft at 5.5% but the size of holdings faded markedly from there.
Rank | Security code | Exchange | Company/investment name | % of funds with international shares that hold this security | % value of total SMSF international shares investments* |
---|---|---|---|---|---|
1 | MSFT. | NASDAQ | Microsoft Corporation | 25.7% | 5.5% |
2 | GOOG(L) | NASDAQ | Alphabet – Class C (A) shares combined | 23.6% | 2.6% |
3 | AMZN | NASDAQ | Amazon.com | 20.7% | 2.8% |
4 | AAPL | NASDAQ | Apple | 18.6% | 7.8% |
5 | V | NYSE | Visa | 10.9% | 1.6 |
6 | PYPL | NASDAQ | PayPal Holdings | 8.3% | 0.4% |
7 | TSLA | NASDAQ | Tesla | 7.7% | 1.8% |
8 | BRK.A/B | NYSE | Berkshire Hathaway Class A & B combined | 7.7% | 2.9% |
9 | NVDA | NASDAQ | NVIDIA Corp | 7.7% | 1.8% |
10 | JNJ | NYSE | Johnson & Johnson | 7.3% | 0.6% |
11 | DIS | NYSE | Walt Disney Company | 7.0% | 0.6% |
12 | ASML | NASDAQ | ASML Holdings | 6.8% | 0.5% |
13 | BABA | NYSE | Alibaba Group | 6.6% | 0.4% |
14 | JPM | NYSE | JPMorgan Chase & Co | 5.9% | 0.8% |
15 | MA | NYSE | MasterCard | 5.6% | 0.8% |
16 | MC | NYSE | Moelis & Co | 5.0% | 0.8% |
17 | COST | NASDAQ | Costco Wholesale | 5.0% | 0.4% |
18 | NKE | NYSE | Nike | 4.6% | 0.4% |
19 | TSM | NYSE | Taiwan Semiconductor Mfg. Co. | 4.4% | 0.3% |
20 | CRM | NYSE | Salesforce.com | 4.2% | 0.3% |
Source: Class. Data as of 30 June 2023 derived from 186,220 SMSFs that use Class software.
*Percentage each security makes up of the total Class SMSF international share investments e.g. Microsoft is 5.5% of the total Class SMSF investments in international shares.
International shares face strong headwinds in the year ahead, as stubbornly high inflation and rising interest rates slow global economic growth and fuel concerns about a looming recession. The falling value of the Aussie dollar against the US dollar also reduces the purchasing power of local SMSF investors.
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