Why more Australian SMSF owners are looking to global equities

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Australian SMSFs have historically maintained strong exposure to local assets, with portfolios concentrated in Australian shares and cash.

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This home country bias persists despite the Australian market representing less than 2% of global equity opportunities. The preference stems from familiarity with local companies, attraction to franking credits, and historically strong dividend yields from domestic assets.

The limitations of Australia's market

The structure of Australia's share market raises concerns around adequate diversification. With financial and material stocks dominating the ASX, SMSF trustees face significant sector concentration risk when limiting investments to domestic equities. This narrow exposure has become increasingly problematic as global markets offer access to growth opportunities in underrepresented sectors.

Australian market concentration creates three key challenges:

- Limited sector diversity compared to global markets

- Overexposure to cyclical industries like banking and resources

- Reduced opportunity for capturing high-growth segments

Accessing tomorrow's growth engines

The global equity universe provides SMSF investors with access to companies at the forefront of innovation and structural growth. These opportunities simply don't exist within Australia's borders at comparable scale or maturity.

Consider the technology sector: While Australia has produced successful technology companies, the sector's representation on the ASX remains fractional compared to markets like the US. Global leaders in cloud computing, artificial intelligence, and digital transformation offer growth potential far beyond domestic alternatives.

Healthcare presents a similar contrast. The global healthcare market encompasses everything from pharmaceuticals and medical device innovators to biotechnology pioneers. Although Australia has several successful healthcare companies, the breadth and depth of international healthcare investments provide exposure to groundbreaking treatments and technologies largely absent from local markets.

This growth disparity extends to consumer-focused businesses. International markets offer exposure to companies capturing surging middle-class consumption in emerging economies—a powerful long-term trend that Australia's market can't fully capture.

Risk mitigation through genuine diversification

SMSF trustees increasingly understand that true diversification means more than spreading investments across different Australian companies. Meaningful diversification requires exposure to different economic cycles, regulatory environments, and currency regimes.

The Australian economy remains vulnerable to specific risks—housing market fluctuations, China's economic health, and commodity price volatility. Global equities provide a hedge against these Australia-specific challenges.

Currency diversification represents another advantage. When the Australian dollar weakens, unhedged global investments typically deliver stronger returns in AUD terms. This currency effect can provide valuable protection during periods of domestic economic stress when the Australian dollar often declines.

Geographic diversification also protects against political and regulatory risks concentrated in any single market. Different regions experience economic expansions and contractions at different times, potentially smoothing portfolio volatility while maintaining growth potential.

Technology removes barriers to global investing

The practical barriers to international investing have fallen dramatically. Today's SMSF trustees benefit from platforms that make global markets nearly as accessible as domestic ones.

Exchange-traded funds (ETFs) offer exposure to global markets, sectors, or themes without the complexity of direct international share ownership. These vehicles handle currency conversions, foreign tax considerations, and compliance requirements that previously deterred many SMSF investors.

Digital broking platforms have simultaneously reduced transaction costs and simplified trade execution. Operations that once required international brokerages and significant resources now take place with a few clicks at competitive prices.

Administration systems have also simplified reporting and compliance for global holdings. Modern SMSF platforms automatically track international investments, simplifying traditionally complex accounting and regulatory requirements.

SMSF assets top $1 trillion as international interest grows

The SMSF sector now represents over $1 trillion in retirement assets, representing substantial growth and economic influence. This expanding asset base has coincided with increasing sophistication among trustees about international investment horizons.

Vanguard's Australian Investor Survey reveals a significant shift in SMSF investment intentions. International equity ETFs now top the consideration list for new investments, with 77% of respondents planning allocations in the coming 12 months—a 7% increase year-over-year. While Australian shares and corporate earnings continue, international equities have become the most sought-after category for new investments.

This trend reflects growing recognition that diversification beyond Australia's borders provides both risk management benefits and access to growth opportunities unavailable domestically.

Looking forward: continued diversification

The Australian market will always remain important to SMSF investors. Its familiarity, favourable dividend imputation, and alignment with local economic conditions ensure continued relevance.

However, limiting retirement savings to Australian assets increasingly appears unnecessarily restrictive. As SMSF profiles and trustees become more sophisticated, the benefits of a globally diversified approach become impossible to ignore.

The most successful SMSF portfolios now typically incorporate meaningful global exposure alongside carefully selected domestic holdings. This balanced approach recognizes both the strengths of the Australian market and its limitations.

For SMSF trustees, the expanding horizon of global investment represents not just an opportunity but a responsibility. In a world where capital flows across borders with unprecedented ease, portfolios built for long-term success must reflect the truly global nature of today's economy.

 

 

 

 

 

Peter Moussa, head of investment insights, NAB Private Wealth
April 26 2025
smsfadviser.com

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