If you're managing a portfolio and you don't own any stocks that earn revenue overseas there could be cause for concern. Here are five reasons why you should consider increasing your portfolio's international earnings exposure.
1) Diversification – In dollar terms, the ASX is dominated by financial and resource linked companies – this is a worry for anyone who owns the index or is concentrated in a handful of blue-chip stocks as it limits portfolio diversity.
By allocating a portion of your portfolio to ASX-listed stocks with global operations and earnings you can increase the diversification of your portfolio's investment universe. One stock to consider with international earnings is Ansell Limited (ASX: ANN).
2) More compelling growth – take ResMed Inc. (CHESS) (ASX: RMD) for instance. Having developed popular respiratory devices, ReMed is able to sell its popular products globally. Companies which are domestically focussed perhaps with little opportunity to expand outside of Australia are more likely faced with limited upside compared with a globally-oriented business.
3) More compelling valuations and acquisition opportunities – a quick scan though a financial news site such as Bloomberg will quickly enlighten Australian investors to the lower valuations overseas investors are currently placing on many stocks – such as banks – compared with stocks at home. Given this situation, domestic companies operating globally are at an advantage as they can allocate capital towards expanding in foreign regions at more appealing prices.
4) Interest rate benefit – Readers will be aware of the near zero official interest rate policy positions in countries such as the USA. While the RBA's 2.5% is low, even lower levels are available overseas. Brambles Limited (ASX: BXB) is one of a number of companies which has taken advantage of low overseas interest rates by raising capital offshore.
5) Currency tailwind – Last but by no means least, purchasing companies that earn a large proportion of their profits in foreign currencies can produce a tailwind for investors thanks to the downward pressure currently being experienced on the Australian dollar.
