When it comes to portfolio construction, SMSFs are missing an important asset class.
Whether because of home country bias, a higher dividend yield on Australian stocks, or previous bad experiences, SMSF investors are not investing in international equities.
According to Insync Fund Managers, SMSFs typically have less than a 10% allocation to global stocks. Insync partner Marcus Tuck says that SMSF investors are very focused on the safety of the portfolio.
“The typical weightings we see within the SMSF are reflective of the conservatism and caution,” he says. “There’s still a lot of money in term deposits, which are not yielding a lot, but there’s that natural conservatism there. That’s the decision of the trustee and their advisers at the end of the day.”
However, Tuck says that the lack of international equities is a missed opportunity.
“There are certain sectors in overseas markets you really can’t get exposure to in the Australian market, whether it’s technology or luxury goods… We think as long as you are buying these companies at good valuations and the exchange rate is at an attractive level, it’s definitely worth considering holding some.”
One such company is European menswear brand Hugo Boss. Although high-end luxury brands such as Louis Vuitton and Prada receive most of the attention, their shares tend to trade at PE multiples as ritzy as the products they sell.
It is the ‘affordable luxury’ brands that are within the reach of more of the world’s growing middle classes in Asia and elsewhere, says Tuck.
The Hugo Boss brand is well-known globally and has been rolling out more stores.
“One of the typical things we look for is a global brand name company that’s domiciled in developed markets…but we like to see that their brands are growing not only in developed world but in the emerging world, where there’s increased purchasing power and a liking for global brand names.
“You have the extra protection of these countries being domiciled in the developed world…An international company that gives you the exposure to emerging markets without the same emerging market risks that you would have from investing directly in emerging markets.”
Insync’s Global Titans Fund currently holds shares in Coach and Hugo Boss. Tuck says investors need to be focused on total returns over a long period of time and on the growth in devidends, not just on the starting yield.