An allocation to international shares is an important portfolio diversifier for any investor and SMSF trustees are no different.
As Australia represents a very small portion of the world's equity markets, an investment in global shares offers investors the opportunity to access industries and sectors that can be very limited in Australia.
There will also be periods when international shares outperform Australian shares, and vice versa.
International shares have been outperforming Australian shares since around April this year, with an annual return for the 12 months to end July 2023 of 17.6% per annum compared to 11.1% per annum for Australian equities, according to the Vanguard Digital Index Chart. But investing offshore also comes with an additional layer of risk in the form of currency risk. SMSF trustees need to understand the impact that currency can have on returns for investments that are not denominated in Australian dollars.
Currency fluctuations can have both negative and positive impacts on portfolio returns. Investors who would like to remove currency risk from the investment equation can do so by hedging their currency exposure using a range of strategies.
