Platinum Asset Management Limited's (ASX: PTM) founder and director Kerr Nielson says he's surprised by Australian investors' unwillingness to invest overseas.
In a statement to the ASX as part of Platinum's financial report, Mr Neilson said,
"It has taken Australian investors a long time to heed our calls for more exposure to world stock markets."
The ASX's total market cap represents less than 2% of the global market cap, and we simply don't have access to monster companies like Apple, Google, Amazon, Visa, General Electric and Berkshire Hathaway.
Mr Neilson continues,
"Now that our terms of trade are clearly heading downwards and the A$ is weakening, we are surprised by their seeming unwillingness to lay off their exposure and have more investment in assets abroad."
In other words, Australian investors have their heads stuck in the sand, ploughing funds into Australian high-dividend stocks like there's no tomorrow, without realising the heightened risks a subdued Australian economy is likely to bring.
Those particularly at risk are those investors with huge allocations of funds in the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
We are missing out
Not only that, but as our S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) index has fallen 5% since a year ago, the S&P 500 Index is up 4%, while the Dow Jones Industrial Index is up 3%. As Australia is reliant on resources for income, falling commodities prices have hammered our resources and energy companies, which in turn pull our index down.
Over the same period, the Australian dollar has plunged 21% against the US dollar. Had investors loaded up on offshore-listed stocks, the falling exchange rate would've seen their returns up 21%, even if the stock prices hadn't moved.
What diversification really means
Many investors still don't seem to understand diversification. Yes, they understand the importance of it, but not how to do it. They might look at a sector chart of their portfolio and see that they have several sectors, with a few at 20%, 30% or 10% of their total portfolio, and assume that they are widely diversified.
But if all those stocks are on the ASX, there's a huge risk of a faltering Australian economy dumping your whole portfolio into the red. Diversification means more than just diversifying by sector. That's one reason why balanced managed funds invest in a range of different asset classes, including international shares.
Foolish takeaway
If you don't have any exposure to US or international stocks, exchange traded funds (ETFs) and listed investment companies focused outside Australia, or ASX-listed stocks with major offshore earnings, it's never too late to begin.
