The International Opportunity

Studies show that Australians suffer from a particularly acute case of home bias when it comes to share investing, typically allocating 50% or more of their equity portfolio to the domestic market. There are plenty of justifications for being overweight on domestic equities: familiarity with the economic and regulatory environment of the home market, easier and cheaper access, favourable tax treatments (e.g. franking credits), and the fact that Australia has had an unprecedented 25 year bull market.

But a strong home bias can mean opportunity costs and an overly concentrated portfolio can entail significant risk. When it comes to saving and investing for future retirement, having all of one’s eggs in one basket is less than ideal.

Select a segment to compare:

MSCI All Country World Index*

S&P/ASX 200 Index^

S&P/ASX 200 Index^

*As at 31/1/2021. Source: MSCI Inc.

^As at 31/1/2021. Source: S&P Dow Jones Indices LLC.
The weighting for each sector of the index are rounded to the nearest tenth of a percent; therefore, the aggregate weights for the index may not equal 100%.

Expand your investment universe to capture more opportunity

  • 186 of the 200 companies that make up the S&P/ASX 200 Index are Australian-domiciled companies, while the MSCI All Country World Index (ACWI) covers 2,962 companies from 23 Developed Markets and 27 Emerging Markets (as at 31/1/2021). The Platinum International Fund typically comprises 70 – 140 securities, which are what we believe to be the best investment ideas at any point in time from a universe of more than 6,000 companies around the world.
  • International equities provide exposure to markets with different economic, political and demographic profiles, not to mention a much larger universe of investable ideas, allowing investors the opportunity to invest in companies operating in countries with faster growth than the domestic Australian economy.
  • Diversification can mitigate many region-specific risks such as geopolitical events, economic cycles and monetary policies. A global portfolio also helps investors avoid over-exposure to the Australian dollar.

An overly concentrated portfolio can be risky

  • As shown in the above pair of Sector Weighting charts, the S&P/ASX 200 Index is skewed heavily towards the Financials and Materials sectors, a reflection of the fact that the Australian economy is disproportionately reliant on the financial services and resources industries. A portfolio with high sector concentration can be unduly impacted by economic and regulatory risks as well as such factors as commodity prices and interest rates.
  • The second pair of charts above – Weighting of Top 10 Constituents – reveal that the top 10 constituent companies in the MSCI ACWI together account for less than 16% of that index, and no single company has a weighting of more than 4%. By contrast, the top 10 stocks in the S&P/ASX 200 are, together, worth nearly half of the index by market capitalisation, and the five banks’ aggregate weight is nearly one-quarter of the index. A portfolio that tracks the S&P/ASX 200 would be highly concentrated in a very small number of stocks, and that can be a risky thing.

Select a segment to compare:

MSCI All Country World Index*

S&P/ASX 200 Index^

S&P/ASX 200 Index^

*As at 31/1/2021. Source: MSCI Inc.

^As at 31/1/2021. Source: S&P Dow Jones Indices LLC; State Street Global Advisors, Australia, Limited.

Expand your investment universe to capture more opportunity

  • 186 of the 200 companies that make up the S&P/ASX 200 Index are Australian-domiciled companies, while the MSCI All Country World Index (ACWI) covers 2,962 companies from 23 Developed Markets and 27 Emerging Markets (as at 31/1/2021). The Platinum International Fund typically comprises 70 – 140 securities, which are what we believe to be the best investment ideas at any point in time from a universe of more than 6,000 companies around the world.
  • International equities provide exposure to markets with different economic, political and demographic profiles, not to mention a much larger universe of investable ideas, allowing investors the opportunity to invest in companies operating in countries with faster growth than the domestic Australian economy.
  • Diversification can mitigate many region-specific risks such as geopolitical events, economic cycles and monetary policies. A global portfolio also helps investors avoid over-exposure to the Australian dollar.

An overly concentrated portfolio can be risky

  • As shown in the above pair of Sector Weighting charts, the S&P/ASX 200 Index is skewed heavily towards the Financials and Materials sectors, a reflection of the fact that the Australian economy is disproportionately reliant on the financial services and resources industries. A portfolio with high sector concentration can be unduly impacted by economic and regulatory risks as well as such factors as commodity prices and interest rates.
  • The second pair of charts above – Weighting of Top 10 Constituents – reveal that the top 10 constituent companies in the MSCI ACWI together account for less than 16% of that index, and no single company has a weighting of more than 4%. By contrast, the top 10 stocks in the S&P/ASX 200 are, together, worth nearly half of the index by market capitalisation, and the five banks’ aggregate weight is nearly one-quarter of the index. A portfolio that tracks the S&P/ASX 200 would be highly concentrated in a very small number of stocks, and that can be a risky thing.