When it comes to investing, familiarity can be comforting – but it can also be costly. Many Australian investors, especially those managing their own superannuation funds, exhibit a strong familiarity bias, favouring domestic shares simply because they’re well-known. This tendency, known as home country bias, leads to portfolios that are heavily concentrated in Australian equities, often at the expense of global opportunities.
The Comfort of the Known
It’s easy to understand why Australian shares dominate local portfolios. Investors recognise household names like Commonwealth Bank, BHP, and Woolworths. These companies feel tangible, trustworthy, and close to home. Add to that the appeal of franking credits, and it’s no surprise that Australian shares are often seen as the default choice.
But comfort doesn’t always equal performance, or resilience.
What You Might Be Missing
Over many periods, international markets have outpaced Australia, particularly due to the global leadership of sectors that are underrepresented on the ASX – think technology, healthcare, and advanced industrials. Companies such as Apple, Microsoft, and Samsung have driven meaningful growth and innovation, yet many Australian portfolios remain underexposed to these engines of global progress.
The result is a portfolio that can be overly reliant on Australia’s economic cycle and sector mix. Our market is heavily tilted toward financials and materials. That concentration can amplify risk during sector-specific slumps or domestic downturns. By contrast, global exposure can introduce new growth drivers, broader sector balance, and a more diverse earnings base anchored in multiple economies.
Beyond Returns: The Diversification Effect
- Sector diversification: Access industries that are smaller in Australia (e.g., software, biotech, semiconductors).
- Geographic diversification: Reduce reliance on a single economy, policy environment, and commodity cycle.
- Currency diversification: While currency adds volatility, it can also smooth outcomes over time; hedged and unhedged options allow you to manage this thoughtfully.
The Managed Portfolio Advantage
One of the most effective ways to access international markets is through managed portfolios. These professionally constructed portfolios provide curated exposure to global equities and are designed to balance risk and return in a disciplined way. Benefits typically include:
- Professional oversight: Ongoing research, security selection, and risk management.
- Systematic rebalancing: Keeping the portfolio aligned to its intended risk/return profile.
- Efficiency and scale: Institutional execution, implementation discipline, and transparent reporting.
- Reduced complexity for investors: A simple, structured pathway to global diversification without the need to pick individual stocks.
Fees do exist, but the right question is value for money. When managed portfolios deliver genuine diversification, reduce concentration risk, and provide access to opportunities you’d struggle to replicate yourself, the net outcome can be compelling – especially compared to the risks of a concentrated, Australia-only approach.
Common Concerns – Addressed
“What about currency risk?”
You can manage currency in several ways – through hedged, unhedged, or blended approaches. The goal isn’t to eliminate volatility, but to make sure it’s the right kind of risk for your objectives and time horizon.
“Aren’t international exposures complicated?”
They can be if you’re building from scratch. Managed portfolios and diversified global ETFs simplify the process and bring structure, governance, and ongoing monitoring.
“Won’t I lose my franking benefits?”
Franking credits are valuable, but they should be considered in the context of overall portfolio outcomes. Overweighting to chase franking can increase concentration risk. Striking the right balance often improves resilience.
A Strategic Shift That’s Practical
Across the industry, portfolio construction is increasingly favouring a more deliberate allocation to international shares and listed property. This shift isn’t about abandoning Australian equities; it’s about right-sizing your exposure so that your portfolio captures a wider set of global growth drivers while controlling risk.
Practical steps you can consider with your adviser:
- Set a target allocation to international equities (and a tolerance band) that reflects your goals, risk profile, and time horizon.
- Phase in exposure using dollar-cost averaging to reduce timing risk.
- Blend hedged and unhedged exposures to manage currency thoughtfully.
- Rebalance periodically to keep concentration in check and maintain discipline.
- Review the role of franking within the total return and risk picture, rather than as a single-factor driver.
Final Thoughts
Familiarity bias is natural, but it shouldn’t dictate your investment strategy. By venturing beyond Australian borders, you can unlock new opportunities, reduce concentration risk, and build a more resilient portfolio. Managed portfolios and diversified global solutions provide a smart, accessible way to get there, fees include, without adding unnecessary complexity.
Your future self may thank you for stepping outside your comfort zone.
