Product Review Shares

GUIDE: International Shares

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Did you know the Australian share market makes up only 2.5% world’s total share market value?

So if you are serious about finding the best investment opportunities, you need to consider international shares.

Here is a quick guide on why you should be looking to get some international exposure in your investment portfolio and the options available to buy and sell international shares.

This is NOT a product endorsement, recommendation or statement of opinion, this blog is ”how it works” style review based on the facts that are available at the time of writing, intended to inform and entertain – please enjoy it as such.

The Case for International Shares

The Australian stock market is a drop in the ocean when it comes to the value of global stock markets.

Believe it or not the size of the Australia stock market has actually shrunk from 3.5% in 1899 to 2.5% in 2016.

US share market vs international stock markets

What’s more Australia hasn’t created a big business in recent memory, while the US has created no less than 5.

Big business Australia v US

If you are serious about accessing the best investments for your portfolio, you need to consider investing in international shares.

Buying International Shares

There are two ways to access international markets:

Option 1
Option 2
International funds traded on the ASX 
Buying international shares directly via an online share broker

1. International Funds via the ASX

Listed investment companies, exchange traded funds, or listed managed funds.

There are over 50 different options to choose from.

International ETFs

Things to Consider

– Brokerage

You can trade these international investment funds via most share trading accounts and you will be charged brokerage by your share broker for buys and sells.

– Product Fees

These investment options are run by a professional funds management company.

The funds management company will charge a fee for the

– Currency

Before buying an international fund make sure you know whether the investment is hedged or unhedged.

  • A hedged exposure means the fund manager is using strategies to offset the impact of currency fluctuations on the underlying investments.
  • An unhedged exposure means that investors are exposed to the fluctuations in the Australian dollar.

Sometimes you may want to take a view on the currency as well as the underlying investments. For example if you think the Australian dollar is overvalued compared to international currencies you may want an unhedged exposure. 

2. Direct International Shares via Online Stock Brokers

We will take a brief look at three of the most popular international brokers Commsec, Saxo & IG Markets.

Summary of Findings

International Share Broker Commsec How to Buy Shares Online IG-MARKETS-LOGO Saxo_Markets
Operated By Commonwealth Bank of Australia IG Group (listed in the UK) Saxo Bank (privately owned Danish bank)
Markets Access to 25 exchanges worldwide 8,000 shares from the US, UK, Germany, Ireland and Australia 19,000 stocks & 3000 ETFs on 36 exchanges.
Brokerage Starting at $19.95 Starting at $8 or 0.1% (whichever is higher) Starting at $9.90 USD
Currency Conversion Costs Not disclosed (be wary about this) 0.3% 0.5%
Custodian Pershing LLC (Bank of New York) Citibank Saxo Bank

1.Commsec Securities (International)

Commsec How to Buy Shares Online

Commonwealth Securities, also known as CommSec, is Australia’s largest discount stockbroking firm operated by the Commonwealth Bank of Australia

Which Markets?

Commsec’s website claims it offers ”access to over 25 exchanges worldwide” but does not list the number of shares that are accessible.

Brokerage

Commsec’s international brokerage rates start at $19.95 USD for trades under $5,000 USD on the US stock markets, and quickly increase for larger trades and other international markets.

CBA International shares - brokerage

Foreign Exchange Costs

To settle an international share purchase you will need the correct currency. Currency transactions involve exchanges rates and fees.

Commsec does not disclose what the currency fees are upfront, so you need to be careful.

CBA International shares - currency

How Are My Shares Held?

Commsec uses Pershing LLC (owned by Bank of New York Mellon) as the international custodian.

CHESS vs Custody

The CHESS system is the way shares are electronically registered to shareholders in Australia.

The CHESS system has its limitations 1) it is a uniquely Australian invention 2) it is too unwieldy for large institutional investors (like super funds).

The Custody system is the international standard for holding shares. The big players in the international custodian market are Bank of New York Mellon, BNP Paribas, JP Morgan, Citgroup & State Street.

If you invest directly in international shares your holdings will be held via a custody service (all international shares are held this way).

2. IG Markets

IG-MARKETS-LOGO

IG Markets, is operated by IG Group a multi-billion dollar company listed on the London Stock Exchange. IG Markets is known as one of the leaders in CFD trading and has recently expanded to offer stockbroking services to its clients, in Australia and abroad.

Which Markets?

IG Markets offer the following markets for Australia clients:

IG Markets - markets

Brokerage

IG Markets has a very low commission (brokerage rate) starting at $8 / trade:

IG Markets - brokerage

Foreign Exchange Costs

IG Markets also offers a low fee on foreign exchange conversion:

IG Markets - FX

How Are My Shares Held?

IG Markets uses Citibank as its global custodian:

IG Markets - custody

3. Saxo Markets

Saxo_Markets

Saxo Markets is owned by Saxo Bank a privately owned Danish investment bank specializing in online trading and investment.

Which Markets?

Saxo claims to offer 19,000 stocks and over 3,000 ETFs on 36 exchanges.

Brokerage

Saxo’s brokerage starts at $9.90 USD for US market trades:

Saxo markets - brokerage

Foreign Exchange Costs

Saxo Markets offers a foreign exchange coversion rate of 0.5%.

Saxo markets - FX

How Are My Shares Held?

Saxo Markets uses Saxo Bank as custodian, with shares held in a trust account (separate to the operation of the bank):

Saxo markets - custodian

Saxo markets - custody fee

Summary:

  • The Australian share market is only 2.5% of the world’s investment universe
  • You can access international markets via the ASX, or directly through an international stock broker
  • When trading international shares you need to carefully consider the brokerage costs and the currency costs / fluctuations.
This blog provides links to third party sites, aimed at helping you gather the information required to make an informed decision – we may receive payment of a commission or other fee for these referrals.

The Wealth Guy Signature

Joshua Stega

The Wealth Guy

Joshua Stega is an expert financial adviser and founder of JAS Wealth in Sydney. He specialises in the habits and behaviours of wealth. Joshua has a Masters in Taxation and Financial Planning and is regularly featured in the media

M.TaxFP, LLB(Hons), B.Bus(Acc), FTI, Adv.DipFP, Dip.FP, SMSF Specialist
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you. This blog provides links to third party sites, aimed at helping you gather the information required to make an informed decision – we may receive payment of a commission or other fee for these referrals.
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