We speak with Douglas Isles (Investment Specialist - Platinum Asset Management) about what he sees as the biggest mistake Australian investors are making.
Below is a transcript of the video for ease of reference.
Mark: Here with Douglas Isles, investment specialist to Platinum Asset Management. And Douglas, what do you think is the biggest mistake Australian investors are making today?
Douglas: Well Mark, I think you may not be surprised as I'm saying this as overseas equity managers. But we actually do think generally Australian investors do not have enough money invested in overseas markets today.
Douglas: I know perhaps I could take you through why.
Mark: Yeah, it'd be great.
Douglas: I think the first thing that's most important is - and one of the things that really guides our investment process if you like, is a belief that people have a tendency to extrapolate the past into the future. So, people tend to think what has happened will always happen.
Douglas: And what we notice and what we observe is things change - and people change, governments change, competitiveness changes, technology changes.
Mark: Currencies change.
Douglas: Currencies change, everything changes. So let's start off by acknowledging that having had a large exposure to Australia for the last decade plus has been good.
Douglas: People have done very well from that. We've not had a recession here, going back to the early '90's. We've had strong wage growth, we've had strong property markets. The equity markets have done well, our currency as well has risen from near 50 cents to close to a dollar. So, we've had all these things going well for us. We've had the benefit of imputation credits for equity investors, and we've obviously had China's investment boom. So, all these things have been great.
Douglas: For Australian investors. But what have we got today? Where are we now? The Australian equity market is very concentrated. You've got all this 40 plus--
Mark: Banks and resources coming in.
Douglas: Percent in banks, 20% perhaps in resources. There's quite a narrow investment universe that people are facing.
Douglas: So, can we think about valuations and when we look around the world, on a relative basis, Australia's not particularly attractive when it comes to where we see valuations. Our currency is no longer competitive, and you see it particularly hitting things like the manufacturing industry. But at 90 plus cents to the US dollar, Australia is struggling in certain industries from a competitiveness perspective. And finally, the home buyers that we have, the amount to which Australian's are exposed to the whole market is greater than any other market in the world that we can identify, other than US. And as you would know, the US has got a much broader range of opportunities for investors.
Douglas: So I think that's where we are today. And when we invest, we have to look forward, rather than looking back.
Mark: Yep. And just to put perspective on the - where Australia sits in terms of the Australian Share Market. How much is that as a percentage of the overall Share Market around the world? It is a very small number.
Douglas: Probably around 3%. So you could look at Australia, and population wise, I think we're less than half of a percent of the global population. GDP, we probably sit one to something - one to two. Stock Market wise, we're probably around three. So--
Mark: So if you've got all the money in.
Douglas: Punch above our weight, which tends to tell you our market may not be cheap.
Douglas: You know what I mean. But when we invest, we look forward. So, first of all, the Chinese investment boom. We think that's coming to an end, China is changing. China's trying to become more domestically focused, more consumption focused. I mentioned valuations. We can find valuations around the world that are cheaper than what's on offer in the Australia market, and particularly in Asia. But also to some extent in Europe, and certain sectors in the US.
Douglas: But one of the things that you know is 20 years as an investment firm. One of the big things we would point out is the growth in the opportunity set. What can you invest in an overseas market as a foreigner?
Mark: Pharmaceuticals, technology--
Douglas: Manufacturing, etc. And the big thing has been that more and more markets have opened up to foreigners. Companies are being born every day if you like. Well I mentioned earlier, we sit with a relatively narrow opportunity set here. So there's the growth in the opportunity set, but there's also the growth in - and the trends if you like. Formally, you mentioned technology, manufacturing, auto, CAPEX in the US. There's various trends that we cannot capture here in this domestic market as much as anybody else. So finally I think as well as the opportunity set, the big thing that we observe our currency. People are aware, today is a great time to buy things online. Whether you're shopping US websites - a great time to--
Mark: Go on an overseas trip.
Douglas: Go to Bali or whatever for an overseas holiday.
Douglas: But people aren't applying that same logic to investment markets. And we think that people are missing the opportunity today if they are not using the solid Australian dollar to buy cheaper, and it's often better companies in overseas markets.
Mark: Okay. Look, they're really good points, thanks for your time with that Douglas, and certainly excellent opportunities to invest outside of Australia.
Douglas: That was great, thanks very much Mark, thanks for having me on.