At various times during my years of investing, I’ve wanted to own companies that had a sizeable portion of their earnings overseas – and preferably in a single location.
I could name 30 or 40 companies that receive foreign earnings without a pause, but instead I’ll point out that shares that draw 100% of their earnings in foreign currencies are exceedingly rare on the ASX.
Savvy investors understand intuitively how they could take advantage of this, especially knowing the AUD is predicted to fall further (albeit not rapidly) over the coming years.
Secondly, 100% foreign earnings companies are a great way to gain international exposure without owning international shares, and whilst retaining the safeguards of ASX listing rules.
Today I present two companies, both real estate investors, who invest purely in Japan and thus draw all of their earnings in foreign currency (Japanese Yen).
Astro Japan Property Group (ASX: AJA) – last traded at $4.18, yields 4.2%.
Astro Japan has had some tough times over the previous years, but looks to have set most of its troubles behind it. Investors gain exposure to a portfolio of 36 buildings in Tokyo and Osaka, consisting of (by area) 67% retail, 20.8% office tenements, and 12.1% residential areas.
It’s potentially a winning combo and well targeted to Japan, given the rampant consumerism so often on display.
I would personally like to see more residential properties in the portfolio to take advantage of space constraints and what I suspect is a growing trend of individual home ownership among younger generations, but it’s hard to fault Astro’s current asset mix.
Better yet the company has Net Tangible Assets per share of $5.68, making the current price something of a bargain.
Galileo Japan Trust (ASX: GJT) – last traded at $1.69, yields 8.3%.
Galileo Trust underwent tough times during the GFC and experienced painful financial surgery over the past couple of years, including debt refinancing and a share issue to pay down debt.
The last two years have been somewhat of a rebirth and Galileo’s risk has decreased greatly. Its portfolio (21 properties) is also centred on Tokyo, though it has other properties spread throughout several urban areas. Again it’s trading at a discount, with Net Tangible Assets worth $2.15 per share.
Investors should note that Astro Japan and Galileo are both highly geared (upwards of 50% each), taking advantage of Japan’s super low interest rates.
This can be an advantageous way to indirectly gear your investments without taking on debt yourself; but of course the company’s debt does make a purchase of these shares more risky.
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Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.