Magellan: Bridging the diversification gap

SMSF Service Provider Awards: International shares

SMSF trustees often have a big gap in their portfolios when it comes to international investments. Australia’s share market only accounts for a tiny fraction of the world’s equities, but local investors, including SMSFs, tend to hold the bulk of their equities allocations in domestic stocks.

Frank Casarotti, head of distribution at Magellan, winner of the CoreData SMSF award for international shares, says most SMSF portfolios are dramatically underweight in their global equities exposure.

Despite the shortfall, Casarotti says trustees are becoming more receptive to considering quality international equities as part of their long-term asset allocation strategy.

Access is a key barrier that SMSFs have faced in including global shares in their portfolios. It can be complicated and costly to buy global shares directly. Managed funds are a much easier, and often more rewarding, option.

Magellan’s global funds, which are available through licensed private wealth advisers and stock brokers, have been standout performers. Over three years, the Magellan Global Fund has returned 20.44 per cent, beating its benchmark by 7.13 per cent.

Investors are attracted to Magellan by the transparency of its investment philosophy and process, Casarotti says.

“Investment returns are always a good guide for potential investors too, as is the familiarity with some of the large names that make up a decent chunk of the portfolio,” he adds.

Magellan is not a thematic manager, but some themes are woven through its portfolio.

“We are a believer that interest rates in the US will normalise and there are financial institutions that we are exposed to which we believe will increase their margins if interest rates rise,” Casarotti says.

“We’ve also got a theme around the emergence of the consumer in the emerging markets; that’s in the portfolio as well.

“There’s exposure to the housing construction recovery in the

US, so we have got exposure to Lowe’s, plus retail banks Wells Fargo and US Bank Corp play to that.”

The move to a cashless society is another investment idea Magellan has incorporated into its portfolios. American Express and PayPal, which is owned by eBay, are among its holdings to capture that theme.

Big technology brands Microsoft and Oracle are also in the portfolio, giving exposure to technology stocks, which are in short supply on the Australian share market, through companies that are major household names.

Mark Burgess collected the award on Magellan’s behalf.

More SMSF Service Provider Award winners

  • Perpetual: Australian share fund
  • PIMCO: Fixed income
  • BGL: SMSF accounting software/administration
  • Macquarie Adviser Services: Cash and accounting
  • Colonial First State: Investment platforms
  • Multiport: SMSF administration
  • TAL: Life insurance
  • ING Direct: Term deposits
  • AMP Capital: Commercial property
  • AMP Bank: SMSF term deposits
  • NAB: SMSF property loans

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