Investing in shares - at home or offshore
When it comes to investing in shares, is it best to stick to your own backyard, or is the grass greener offshore?
When investing in New Zealand shares you effectively become a part owner of a kiwi business. The familiarity of investing in known companies on home turf is something many investors find appealing and the returns they have achieved over the last few years has certainly added to the appeal.
While not immune to volatility, New Zealand equity markets have historically been relatively sheltered. The NZSX All Gross Index, over the past five years, has significantly outperformed Australian and Global markets. As a result, some local investors have made impressive gains.
QuayStreet Asset Management’s NZ Equities Fund, for example, has a five-year average return of 17.5% before fees and tax (16.2% after fees), ranking it as one of the country’s top performing New Zealand retail KiwiSaver funds according to the FMA’s KiwiSaver Tracker and also the Sorted KiwiSaver Fund Finder.
Ultimately, investing in local companies does not cut you out of the global action; many of our listed firms – such as Fisher & Paykel Healthcare, Fonterra and the A2 Milk Company – do much of their business offshore.
However, there’s no denying New Zealand is a relative minnow on the world stage, and global markets offer scale and access to different sectors that are simply unavailable here. Home to leviathans like Google, Apple and Amazon, the US for example, offers great exposure to the tech industry, while Australia offers high exposure to the banking and mining sectors that are less available in New Zealand.
“Globally you can invest in a raft of different sectors, and a raft of different markets, but in New Zealand there is that home advantage of knowing the market, and its constituents, really well,” explains Andrew South, QuayStreet Investment Manager for Australasian Equities.
What’s important, he says, is to “understand your risk profile and make the most of the available opportunities to achieve a balanced, diversified portfolio of investments across a range of markets and sectors”. QuayStreet manages a suite of 10 funds with region specific exposures across various risk profiles, offering investors the ability to pick and choose the exact fund that meets their own personal objectives and requirements. These include funds such as the Australian and International Equity Fund, the Income Fund and the entire diversified range of Conservative, Balanced and Growth Funds.
“A very important aspect of investing in equities is the time spent in the market” says South. “There can be some fantastic short term returns made. However, if you exit your investment early you may miss out on the bulk of the potential return as the effect of compounding returns becomes more prominent with time.”
“The key when investing in any equities is time spent in the market”
The chart shows three people entering the market at different times all investing $20 a week, which earns a 6% return, compounded monthly. The end result is significantly different due to time in the market and compounded interest over that time.
Please note: This example is provided as an illustration only and is not intended to represent any indication of future performance. This graph assumes a weekly contribution of $20. It is an illustration using an average investment return of 6% p.a. (before fees and taxes) and does not represent any indication of future performance. Returns are not guaranteed and the value of your investment may go down as well as up. Total values have been rounded. The graph does not take into account inflation. Returns are compounded monthly.
"Invest consistently to take advantage of market opportunities and smooth returns over time"
By investing a fixed amount at regular intervals, regardless of the price, you will by default purchase more shares when the price is low and less shares when the price is high. This consistency in investing can help you take advantage of buying opportunities at times when markets are low and can help achieve more stable returns overtime.
Example is for illustrative purposes only and should not be regarded as investment advice.
Assume you would like to invest a $100 every month by buying shares in a particular company.
As shown in the chart below the share price over the year has been volatile ranging between $13 and $8, dictating the number of shares you have been able to purchase for your $100 monthly contribution.
For you the average purchase price is $10.36 over that year, whilst the share price at the end of the year is $10.36, resulting in a return of 11% on your total investment.
Find out more about the NZ Equity Fund >