CPD: The case for global share investing – changing the world, unchanging principles


Investors holding a combination of Australian and global shares may help lower their risk.

If you’ve noticed that your portfolio is mainly comprised of Australian investments, you’re not alone. Most Australians tend to invest ‘at home’.

There are reasons why this happens – Australian markets and companies are familiar to you, dividend imputations are attractive and currency risk feels like a hassle. But is this strategy appropriate through all economic cycles and what opportunities are you missing elsewhere?

Reasons to consider investing in global shares

1. Australia is a drop in the ocean of investment opportunity

Consider that the combined value of all shares traded around the globe is well over $US99.76 trillion.1 Australia is but a drop in this ocean, representing only around 2% of the total world sharemarket.1

2. The Australian sharemarket is highly concentrated by security and industry

The financial services and resources sectors, combined, represent 50% of the Australian market,2 while the top ten companies represent approximately 46% of the market. Why is this problematic? Simply put, because our overall market performance tends to be driven by the performance of two dominant industries. Over 2014, for example, we saw how weak performance from the metals and mining sector constrained the gains of the broader sharemarket.

3. Global share investing offers exposure to companies in different industries

Healthcare and information technology represent 27%3 of the global sharemarket. In Australia, they represent just 7% and 1%,2 respectively.

By gaining exposure to industries in global markets that are under-represented in Australia, it could be possible to enhance the risk and return characteristics of your portfolio.

4. Diversification improves risk and return potential

Investing in global shares provides geographical and industry diversification, which may improve a portfolio’s risk and return potential.

In accessing companies that operate in a different environment from Australia, you can potentially benefit from broader opportunities.

Country-specific drivers of share performance, such as economic growth, politics and regulatory issues have the potential to create wide variations in share performance over differing timeframes. This creates abundant opportunities for active investors who are continually seeking high-quality companies and are not limited to investing in a single country or region.

Investors holding a combination of Australian and global shares may help lower their risk because it is spread across a wider number of countries, industries and companies.

5. Global share investing offers exposure to better opportunities and access to familiar brand names

Investing in global shares provides access to specific regional opportunities such as Royal Philips NV, and to well-known global companies such as NASDAQ, Oracle, Johnson & Johnson and Barclays PLC.

By investing overseas, you can also capture the growth potential of global giants such as Microsoft, Nestlé, Proctor and Gamble, and other market leading companies with broad geographical reach.

In addition to the giants, you can also tap into the next generation of Apples and Samsungs.

Lets take a deep dive into one of these opportunities – online advertising

As digital disruption continues to shake up the landscape and operating environment for many industries it also offers up opportunities. In the Perpetual Global Share Fund we have done well out of online advertising and transactional businesses over the years as they benefit from these shifting dynamics.

Businesses like Expedia, Yahoo and Qihoo as at 31 March 2017 made up 14% of our portfolio allocation in the Perpetual Global Share Fund. We like these businesses as there is a clear tailwind out of traditional media expenditure towards digital media advertising. Companies that we invest in, that are directly exposed to this trend, are spread around the world and include Criteo – a global digital performance marketing company; Alphabet – whose core assets are in Google, which generates search advertising; and Youtube – which generates its profits from online video advertising. We also invest in a number of online advertising and transactional businesses in China which include Zhaopin and Autohome.

We have a larger proportion of our online advertising portal investments in China at the moment as the rate of growth in this region is much faster and the market is not as developed as the western world. The size of digital advertising expenditure in China is well below the US but it is catching up and growing at a much faster rate. However, the US is still growing at a healthy rate and Alphabet and Criteo are benefiting from this trend. Alphabet and Facebook are getting 70-80% of every incremental advertising dollar being spent on digital and their growth is showing no signs of slowing. We met with the chief executive of Colgate recently and discussed how South American millennials are spending all their time on Facebook and YouTube. Colgate, like most other large corporates, are diverting more of their advertising spend to these mediums.

Online advertising portals in China

China and Asia have incredible prospects for growth over the next several decades and look to invest in these structurally advantaged media businesses. While we are finding it harder to find mispriced businesses of this kind in the US, we are not having trouble finding them in the rest of the world, especially in Asia. I have included a recent quote from Charlie Munger, who sums up China nicely: “What I like about China is they have some companies that are very strong and still selling at low prices. The Chinese are formidable workers and they make wonderful employees and there is a lot of strength in that system. The Chinese government helps its businesses, it does not behave like the government of India which doesn’t help its businesses at all. That’s what I like about China”4 Munger went on to say that he only has three investments: Berkshire Hathaway, Costco and an investment in a Chinese fund.

As we all know, advertising expenditure is shifting quickly from traditional media to online and this is no different in China. In 1H16, while advertising declined in newspapers (-41%), magazines (-29%) and tv (-4%), it actually increased by 27% for online advertising.5 There is a similar trend in the general Chinese economy as growth shifts from older industries like manufacturing to more new age service industries. Therefore, our focus in China has been in structurally growing industries such as consumer, healthcare and online advertising.

We invest in businesses like Zhaopin, the leading online employment classifieds business in China, which has recently been bid for by Seek and Chinese private equity. This is the third bid that Zhaopin has received over the past year and I get the sense that we are nearing the end of this bidding war. We have every degree of respect for Seek and what they have managed to achieve in Australia and globally over the past decade and have every confidence that Zhaopin will continue to emulate this success in China. We have invested in Zhaopin since their initial public offering in mid-2014. The company’s 2017 second quarter financial results compared to its 2014 fourth quarter financial results, show that the business grew from 89.5 million registered users and 244,000 unique customers back then to 130 million registered users and 395,000 active unique customers today.6 They have now overtaken the incumbent 51 jobs, who initially had more unique customers but now only has 337,000. The company has over US$5 million in cash, highlighting the strength of the balance sheet and given that it has the other criteria that we look for, being an owner-managed business (Seek and the Bassat brothers control the company), a growing business with strong free cash flow and a business trading at an attractive valuation, it is no surprise that it has received three bids by private equity.

Autohome is another example that comes to mind. As the leading automotive online advertising business in China. Autohome was spun out of Telstra at the end of 2013. We bought in during the IPO as we liked the business and managed to buy in at an attractive valuation. The valuation quickly ran above what we felt was fair value in 2014 and we subsequently sold out. Like many of the companies that we have in the past invested in, we continued to monitor the progress of Autohome despite not being a shareholder in the business. Fortunately at the end of last year, we got the opportunity to buy back into the business at an even more attractive valuation than what we paid in 2013.

A long-term investment

Global shares are not for the short-sighted. Share investors – global and Australian – require long-term focus. Investors should expect to hold their investments for several years. If your investment timeframe is short-term, an investment in global shares is unlikely to be suitable.

How do global shares fit into a balanced portfolio?

Every investor has different needs for income and growth, a unique tax situation and a personal risk tolerance. You need to consider all these four factors when making investment decisions. Global Shares provide increased diversification to a balanced portfolio, and can help reduce portfolio volatility and risk when combined with Australian assets.


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1.  Source: World Federation of Exchanges. As at 30 June 2016.
2. As represented by the S&P/ASX 300 Index. As at 30 June 2016.
3. As represented by the MSCI World Index. As at 30 June 2016.
4. Daily Journal Annual Meeting, 15 February 2017
5. CTR, Nomura Research
6. 2q17 result release Nasdaq


This publication has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The PDS for the Perpetual Wholesale Global Share Fund Hedged and Perpetual Wholesale Global Share Fund issued by PIML, should be considered before deciding whether to acquire or hold units in the fund. The PDS can be obtained by calling 1800 011 022 or visiting our website www. perpetual.com.au. No company in the Perpetual Group guarantees the performance of any fund or the return of an investor’s capital (Perpetual Group means Perpetual Limited ABN 86 000 431 827 and its subsidiaries).

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