Australian investors are arguably a little too patriotic when it comes to portfolio diversification and this stance could be putting investors at risk of both an overly concentrated portfolio and the risk of missing profitable opportunities such as the 378% rally in the share price of XERO FPO NZ (ASX: XRO).
At a macro level there is plenty of data which supports the view that the Australian superannuation industry's overall exposure to international equities is far too low and the exposure to domestic equities is alarmingly high.
While the case for having diversified, weighted equity exposure to both domestic and international shares is a good one, even just incorporating a more considered international view when investing in ASX-listed stocks would be a start.
There are two ways this diversification can easily be achieved.
Firstly, a number of ASX stocks have an international focus and earn the majority of their revenues overseas – this is a good source of diversification for a portfolio.
Secondly, there are 31 New Zealand (NZ)-based businesses – including accounting software developer Xero – which are dual-listed on the ASX. These 31 stocks are a simple way to add diversification to an Australian-centric portfolio.
In addition to Xero which could potentially have enormous earnings growth ahead of it, here are three NZ dual-listed stocks that could be worth a closer look.
SUMMERSET FPO NZ (ASX: SNZ) owns and operates retirement villages in NZ. Just as Australian-based operators are benefiting from the aging trend, so too is Summerset. For investors looking for diversification by country, currency and also regulatory risk this business could be worth a closer look.
Fonterra Shareholders Fund (ASX: FSF) provides exposure to one of the largest dairy manufacturers in the world. Fonterra handles a massive 22 billion litres of milk each year. Owning shares in this company offers important geographical and climatic diversification for any portfolio which is exposed to the dairy industry.
Gentrack Group Ltd (ASX: GTK) is another exciting software firm based in NZ. The company floated during June but recently disappointed investors with a downgrade to its prospectus forecast. Despite the FY 2014 downgrade, management reaffirmed FY 2015 guidance which could make any further share price weakness a potential buying opportunity.
