Why Buy International Securities?

By Kenneth Robson on March 28, 2014 • ( 0 )

Disclaimer

At the beginning of 2014 I decided to open an account with the international desk of Commonwealth securities.

I did so in order to retain ownership of ten thousand shares in Linc Energy after it shifted its listing from the ASX to the Singapore Stock Exchange (SGX).

I did not do so lightly. On the positive side, I avoided selling my share-holding when the shares had been dumped by many Australian shareholders, and were at an all-time low. In my opinion Linc Energy have significant reserves of coal, shale oil and gas, as well as conventional petroleum deposits. In addition they have a number of potentially fruitful exploration licences globally, and are pioneers of a significant new technology for converting inaccessible coal deposits into the cleaner energy gas product syngas, or into synthetic diesel and aviation fuel. I believe the risk of further down-side of the share-price is more than covered by upside potential, if the market re-rates it according to its assets.

I am neither a professional investor, nor a qualified adviser. My goal is to share information and my perspective as a retail investor, of including a direct investment in some international shares in my portfolio. I will seek to assess the wisdom of my choice, by reviewing my thinking in the wake of this decision. .

There are several reasons why investors might choose to include some international shares/ securities in their portfolio. In fact more and more investors are doing this in one way or another..

To facilitate diversification of portfolio across all sectors and markets
To better match the Selectivity of investment to market opportunity.
To avoid having to invest in companies listed on the ASX with limited liquidity.
To increase profits from larger capital gains possible in a larger market with more price volatility.
To invest in the world’s most profitable companies – ranked as global titans.
To follow internationally renowned investors, such as Warren Buffet.
To hedge against currency risks.
To exploit arbitrage opportunities.
To invest directly into commodities.

What are some ways Australian retail investors can gain exposure to international markets?

Invest in large cap Australian companies with global operations such as BHP-Billiton, Rio, Woodside, Leighton Holdings, CSL.
Invest in ASX listed LIC’s (Listed Investment Companies), and non-listed managed funds.
Invest in ASX listed Exchange Traded Products (ETP’s)
Trade almost any overseas market with Over the Counter (OTC) Contracts for Difference (CFDs).
Direct Investment in International Equities through a broker with an international trading desk.

My choice – Direct investment in International Shares

This choice will inevitably increase the complexity and cost administering my portfolio, and introduce risks, particularly forex risk, from currency movements. However I believe the risks can be managed, and better returns may be attainable with care.

To this end I have decided to:

Avoid using derivatives to trade international securities.
Avoid excessive gearing.
Make provision for all broker charges and requirements.
Place a portfolio limit of 10% on my allocation to international securities.
Set a stop/loss position of 15% on any one position.
Subscribe to news services such as Bloomberg, and Yahoo for specific corporate research, and other market information.
Subscribe to the charting service of Incredible Charts to be able to use technical analysis on securities in global markets.
Monitor corporate announcements from the relevant stock exchanges, and from search engines such as Google.
Choose to invest in countries where I can spend or accumulate the profits from my investment, instead of repatriating the income to Australian dollars, when the currency movement has been against one’s position.
Carefully monitor currency movements, as well as the share-price.

At this stage I have only two investments: