Australian retail investors are moving more and more assets into the international and offshore funds marketplace, according to a new report from Cerulli Associates.
The Cerulli report highlighted that fund managers in Australia’s retail market usually have to compete against a strong home bias underpinned by dividends from Australian blue chips, and the tax credits attached to them.
However, with dividends potentially suffering from required capital expenditure, cyclicality in the commodities sector, and a shrinking Australian equity market, there is no better time for international managers to consider their entry.
“Appetite for international funds is getting stronger, as it becomes increasingly clear that Australia does not have enough assets to deal with the investment need,” the report states. “This is especially evident in equity products, which make up nearly a quarter of retail-offer managed funds.
“In 2012, Australian equity assets in retail funds were approaching double the level of international equity assets. Now, though domestic equities are still more popular than international, the gap is narrowing.”
Cerulli point that over the last five years, global equities in Australian dollars have outperformed domestic stocks, leading to better inflows –partly because the Australian market is overweight in financials and resources, which have performed poorly in that time frame.
At the same time global indices have higher allocations to consumer staples and technology, which have done better.
Falling Australian dollar
The falling Australian dollar has also benefited global products, provided they are unhedged. Many managers offer both hedged and unhedged products.
For the last three years the top two (and the top three in 2016) in terms of assets under management (AUM) have been global equity products, despite the fact that Australian equities represent a larger proportion of overall assets than international equities.
This, Cerulli point, suggests that Australian equity holdings are “spread across a wider range of funds” than international assets are.
The strongest new inflows into a product in 2016 went to the Orbis Global Equity product, which is domiciled in Bermuda but has strong Australian representation.
‘Greater diversity of sectors’
“Managers say it is becoming easier to explain to their client base, including individuals, that it is not necessary to allocate all equities to the home market, and that a greater diversity of sectors can be accessed by seeking global companies– the popularity of tech and pharma stocks perhaps driving this changing mindset,” the report concluded
“Australia is a wealthy country with a sophisticated individual investor base and a long-standing trust of managed fund structures. Fund managers that make the effort will find a lucrative market, as the asset pool is so big that there is room for every approach.”
To read the full report click this link to the October 2017 issue of The Cerulli Edge – Asian Monthly Product Trends Edition.