GLOBAL EQUITY APPEAL

Why international equities are worthy of attention

The global economic landscape is looking stable yet positive, giving investors extra incentive to favor international equities as part of their core portfolio. A cost-effective and simple way to gain exposure to this asset class is by including international ETFs to help improve diversification and overall returns. Read on to learn more.


Fishing in a bigger pond

As some economies move beyond fears of deflation, consumer confidence is rising. This change in economic outlook usually correlates with better company earnings, boosting overall returns from equity investments, through dividends or reinvested profits leading to higher valuations.

While Australian equities are attractive in terms of yield, they only represent around 2.5% of the global market. This is a small pond to be fishing in for returns and it’s a very sector specific one too. Looking at the table below, it’s clear an Australian equity profile is great if you’re building a portfolio that’s heavily weighted to the financial and mining sectors. But for exposure to the technology and healthcare industries, it barely scratches the surface. Having a healthy dose of international equity in a portfolio can increase potential for better overall fund performance, and reduce concentration risk with a more even distribution of assets across sectors and regions.

Comparative sector exposure for Australian and International Equity ETFs

 

SectorIOZ - ASX200IWLD - MSCI World All Cap
Financials 37.15% 17.53%
Materials 16.65% 5.32%
Health Care 7.09% 11.84%
Information Technology 1.27% 15.53%

Source: BlackRock 22 August 2017

Consider the impact of currency

Changes in currency values relative to the AUD are a potential hazard for investor returns from any international asset. Seen through the ever-shifting lens of foreign exchange, earnings from global companies can appear much less rewarding or reliable for Australian investors. So is hedging the answer? It can be a way to reduce, eliminate or even benefit from the impact of currency markets. A hedging approach really depends on the view you take of how the AUD is likely to move. Investors can isolate exposure to equity markets and eliminate currency volatility with 100% hedging or seek to achieve gains from both FX and equity markets with unhedged investments.

Best in class for value and exposure 

To enhance potential returns and limit the loss of investment earnings to fees over time, diversification and cost are two of the most important considerations when it comes to building a core portfolio.  With a management fee of just 0.09%, the iShares Core MSCI World ex Australia ESG Leaders ETF (IWLD) leads the market on pricing. It also offers the broadest possible exposure to the international equities market compared with equivalent ETFs available on the ASX.

For a full hedged exposure to the same benchmark index, the iShares Core MSCI World ex Australia ESG Leaders (AUD Hedged) ETF (IHWL) has an equally competitive management fee of 0.19%.

Benefits of iShares Core International Equity ETFs:

✔Lowest cost International Equity ETFs on the ASX1 - IWLD 0.09% and IHWL 0.12%

✔Broadest exposure  MSCI World All Cap benchmarks 5963 stocks which gives investors exposure to 99% of global market cap2

✔Strong performance  over 10-year period has outperformed comparative benchmarks e.g. MSCI World3

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