87% of Australian investors don’t bother to invest directly in overseas shares. It’s a big missed opportunity. Australia’s economy has long been the envy of the world, and rightly so, but the diversification benefits of international investing are massive. Oh, and the ASX isn’t the only home of great companies.
One of the best and easiest ways for Australian investors to get a little more bang for their international buck is to look across the Tasman. Indeed, beyond our focus on small-cap shares in Australia and pre-IPO investments, our planned Lakehouse Small Companies Fund will have the ability to invest directly into the New Zealand share market.
New Zealand ticks many boxes for us at Lakehouse Capital: prosperous, foreign-investor friendly, and underfollowed. The country punches above its weight thanks to tourism, agriculture, and a vibrant startup scene. Its local exchange also boasts a stable of strong national champions plus a surprising number of attractive, high-growth companies.
Investing directly in New Zealand has another big draw: the market is far less picked over than the ASX. I can speak with experience, having visited Kiwi companies among my research trips across 4 continents, but I also speak with data.
Australia’s 50 largest companies are followed by twice as many analysts as New Zealand’s 50 largest, according to S&P Capital IQ, meaning it is easier for enterprising investors to develop an edge scouting out New Zealand companies.
Some Australian investors think they already have access to New Zealand’s best and brightest because 47 New Zealand companies are listed on the ASX. However, that’s only a slice of what New Zealand offers: more than two thirds of New Zealand’s listed shares are exclusive to their home market.
Something else that’s important: the dual-listers from New Zealand on the ASX also have far superior liquidity in their home market — especially for smaller, less liquid companies. Here’s a brief sample of some dual-listed names and the multiple of their average daily shares traded on the NZX:
Source: Google Finance
Small-cap investors and fund managers who limit themselves to Australia are missing out on deeper liquidity on these dual-listed shares. In fact, shares of Orion Health didn’t trade at all on the ASX in 16 of the 23 trading days in August. It’s far, far better to open such a position on the more liquid market — assuming you’ve built that flexibility into your mandate, as is our plan.
I should stress that we expect the vast majority of the investments we’ll make at the Lakehouse Small Companies Fund will be listed here in Australia. Still, we’re seeing some very compelling opportunities in New Zealand, a number of which are not listed in Australia. We think that’s yet another exciting way we expect to add value to Australian investors.
Stay tuned for more on our strategy in the coming weeks, and thanks for your interest in Lakehouse Capital. We’re excited to get started!
Joe Magyer, CFA
Chief Investment Officer
The above article contains general investment advice only (Lakehouse Capital Pty Ltd is the Corporate Authorised Representative of The Motley Fool Australia Pty Ltd AFSL 400691). The Motley Fool owns shares of Xero.