Overcoming 5 myths about global equities
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Christine St Anne is Morningstar's online editor.
In the latest issue of Huntleys' Your Money Weekly, Morningstar head of equities research Peter Warnes writes about the value of investing in international equities.
According to the September quarter Self-Managed Super Fund (SMSF) Investor Intentions Index Investment Trends Report, trustees still have a high allocation to cash. Australian equities were still prominent in their portfolios, but trustees remained underweight international equities.
"The under-allocation of funds to international equities may stem from a reluctance to move away from the comfort zone and a lack of confidence in the investment research," Warnes says.
Warnes describes Morningstar's latest initiative - the International Best Idea - as a strategy designed to "break the ice" and introduce subscribers to Morningstar's international equity coverage and investment opportunities. Each month, Morningstar will introduce readers to an international best idea stock.
Last week, Morningstar's article, 3 reasons to invest in global equities, looked at why investors should boost their allocation to global stocks. The article included themes addressed in a JBWere investment paper. This paper in turn highlights a number of myths that prevent investors from looking at international equities.
Given Warnes' comments, we thought it was timely to explore these myths in more detail.
I prefer to invest in businesses I am familiar with
Telstra (TLS), BHP Billiton (BHP), Rio Tinto (RIO) and the four major banks are as familiar to us as a cold beer on a hot summer's day. These companies have not only performed well, but their brands resonate with investors.
However, many global companies also carry familiar names such as Apple, Johnson and Johnson and Heinz. These companies have also performed well, according to Morningstar's global research. A number of these companies also have a Morningstar moat rating.
"Investing in international equities is perceived to be more risky than 'home-grown' investments, but this is not necessarily true," Warnes says.
"Investors generally may feel more comfortable investing in local companies as they are easily identifiable and a part of everyday life," he says.
"An Australian investor is likely to be more comfortable owning Woolworths (WOW) than perhaps Wal-Mart, despite the latter being hypothetically better value."