Investing like a pro means looking offshore
The experts don’t keep all their money in New Zealand, Martin Hawes says.
Have you ever wondered why it is that most big professional investors put a lot of their funds offshore?
Funds like the New Zealand Super Fund (aka the Cullen Fund) have big proportions of their cash invested internationally.
In fact, the Super Fund has just 15 per cent of its $36 billion invested in New Zealand – the rest is offshore.
There are good reasons that big, professional investors invest a lot offshore.
The first is that funds like New Zealand Super deal with big numbers – any meaningful investment is likely to move the market.
To invest, say, $50 million in Ryman Healthcare could see the additional demand for shares push the price up if the purchase was made quickly.
Similarly, and potentially even more troublesome, is getting out of the investment – selling $50m of Ryman shares would be quite negative for the share price, especially if it was in a down market.
The New Zealand market is really too small for big players. They know that their buy and sell orders can swamp the New Zealand markets but, by contrast, a $50m investment in New York or London would create barely a ripple.
Retail investors do not deal with big numbers so this reason for investing offshore is much less valid: we can buy and sell our smaller holding of, say, $10,000 quickly and easily in New Zealand.
However, the second reason for investing internationally is certainly valid for retail investors: New Zealand lacks the opportunities that are available offshore.
At the very time that Asia is resurgent and technology is revolutionising the planet, investors of any kind should not be restricted to New Zealand.
Thirdly, all investors should know that New Zealand is small and risky. Our economy is very limited and, if you invest only in New Zealand, it is impossible to get good diversification across a lot of different industries.
Professional investors know that when New Zealand hits big trouble, they will be far better off with a good part of their money invested elsewhere.
A major New Zealand downturn might be at the very time money is needed.
New Zealand has an immense amount going for it in lots of different ways but for investors of all kinds and sizes it is a long way from investment-market central.
For better risk-adjusted returns and for proper diversification, we should all have some of our money offshore.
Martin Hawes is the chair of the Summer KiwiSaver Investment Committee. He is an authorised financial adviser and a disclosure statement is available from him on request and free of charge at www.martinhawes.com. This article is of a general nature and does not constitute personalised advice.