Australian versus global shares: understanding exposure

Australia is one slice of the world

Australia has plenty of well-known listed companies, but it’s only a small part of the world’s share market. If you invest only here, you’re relying heavily on Australian businesses and industries. Going global changes that mix, along with currency exposure.

Currency changes the experience

An Australian investor holding overseas assets may see their returns affected by exchange-rate movements. A rising Australian dollar can reduce the Australian-dollar value of unhedged foreign holdings; a falling dollar can increase it, all else equal.

Currency hedging changes how that exposure operates, but brings its own costs and trade-offs. “Hedged” does not mean free of investment risk.

Watch for overlapping exposures

Funds with different geographic labels can still own the same companies. Checking top holdings and index rules can reveal concentration that is not obvious from the names on a portfolio screen.

The question is exposure, not a magic percentage

There is no universally correct Australian-to-international split. This guide offers concepts to investigate rather than a recommended allocation. Personal circumstances, taxes, goals and capacity for loss can make the analysis more complicated than a single rule of thumb.

What is home bias?

Home bias means holding more of a home country’s securities than its weight in the wider investable market. There can be practical reasons for preferring familiar local assets, but familiarity should not be confused with diversification.

An Australian investor may already have significant financial ties to Australia through employment, a home, a business or superannuation. Those exposures are worth recognising when learning how market geography can influence overall financial risk.

Understand what “international” includes

An international fund may cover developed markets only, exclude Australia, include emerging markets, or focus on a narrow sector. Its index description is more precise than the label on a marketing page.

Some international funds are priced in Australian dollars yet still carry foreign currency exposure. The trading currency of a fund unit and the currencies of the underlying assets are not necessarily the same.

A quick check for Australian concentration

List each fund you already own or are researching and write down its Australian allocation. Don't just count Australian fund tickers, because an ASX-listed ETF may hold overseas businesses. Then check industries: Australian share indexes can have sizeable banking and resources exposure, while global funds have their own concentrations.

Compare what you'd own with and without an additional global fund. The useful question is whether it changes your overall exposure, not whether it has an overseas-sounding name.