3 ways to gain overseas exposure through the ASX

According to ASIC, the total Australian market capitalisation represents just 2% of global equity market value.

Without overseas exposure in their portfolio, Australian investors deprive themselves of the chance to benefit from economies with different industries or higher growth.

Thankfully, in addition to the numerous ASX-listed companies with significant overseas earnings, investment vehicles such as Exchange-traded Funds (ETFs) and Listed Investment Companies (LICs) can provide geographic diversification.

The ASX contains several companies that are genuine global leaders in their industry. A list of such companies, by no means exhaustive, would include packager Amcor Limited (ASX: AMC), protective glove maker Ansell Limited (ASX: ANN), pallets business Brambles Limited (ASX: BXB) and biotherapeutics company CSL Limited (ASX: CSL).

By including companies such as these within a portfolio, investors benefit from direct ownership of cash flows generated overseas.

ETFs and LICs provide an indirect investment in companies in different ways but are still bought and sold on the ASX like a normal stock. LICs are typically a portfolio of stocks individually picked by an investment manager with a specific mandate.

Such as to own companies of a particular region, country, or size, or to follow a set investment strategy like value or growth.

The number of LICs on the ASX with an overseas investment mandate is increasing, with some well-established examples including the predominantly US-focussed MFF Capital Investments Ltd (ASX: MFF), Platinum Capital Limited (ASX: PMC), run by high-profile stock picker Kerr Neilson, and Templeton Global Growth Fund Ltd (ASX: TGG) which listed in 1987.

Not all LICs are created equal and investors should first consider the type of LIC they require, who the investment manager is, their management fees and how they have performed in comparison to their benchmark over time.

As LICs are traded like any stock on the ASX, the share price can fluctuate and be bought and sold at a premium or discount to the portfolio’s Net Tangible Asset (NTA) value. Individuals should also include the LIC’s historical share price premium/discount to NTA in their analysis before reaching an investment decision.

ETFs are another option for investors to obtain an indirect holding in several underlying assets through a single ASX listing. ETFs differ from LICs in that they are usually passive-style investment vehicles which closely follow the performance of a particular index for a small fee.

Growing demand for these low-cost investments has increased the number of products available on the ASX to the point where not only can you buy several ETFs that track popular indices like the S&P 500, but also lesser-known ones like the S&P Europe 350 or MSCI Emerging Markets.

You can even buy ETFs for specific sectors, industries, investment strategies, commodities and currencies. It’s coming to the point that if you think of an investment theme, chances are there’s an ETF to represent it.

Foolish takeaway

Historically speaking, it has been both inconvenient and expensive for Australian investors to directly invest in international equities. While this situation is slowly changing, there are still several other options available to gain global diversification through the ASX.

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Motley Fool contributor Ian Crane owns shares in Amcor Limited and MFF Capital Investments Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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