If you’re investing, it’s likely that you have some exposure to New Zealand assets – but are you investing internationally too?

While many New Zealanders invest in local shares, bonds, fixed interest and other assets, many investment and retirement savings products include overseas exposure. Some investors hold foreign shares directly too.

This generally means access to a wider range of companies and industries to invest in, and can help with diversification.

However, it also introduces some extra factors that can influence returns, including currency movements.

Here are a few things that are important to know about international investments.

Global exposure

A number of managed funds, both inside KiwiSaver and outside, include overseas investments. That adds regional diversification beyond the New Zealand market.

Most Kiwi investors have strong exposure to the local economy, even if only through their work and homes. 

Having international investments alongside this means that if something happens to the local economy, you may have investments in other countries affected to a lesser extent, reducing the overall impact on your financial assets.

That global diversification can also give you access to industries and sectors that are not prevalent in New Zealand, and may also be performing differently. You may be able to find more growth opportunities offshore, particularly in emerging economies. Your SHARE investment adviser can help you decide how much international exposure is right for you.

Different currencies

Currency movements can affect your investment returns.

If you’re invested in assets generating a return in foreign currencies, such as US dollars, British pounds or Australian dollars, the returns you see from investments in that country will vary when converted to New Zealand dollars depending on the relative strength of the other currencies.

When the New Zealand dollar is strong, it can mean returns from international assets are weaker, and when the New Zealand dollar is weaker it can boost your returns. It doesn’t mean the value or return of the underlying investment has changed, it’s only the effect of the conversion.

Hedging

Fund managers have tools to manage these movements, such as hedging. Hedging is a risk management strategy that can limit the impact of currency movements on your investments and returns. Others leave their currency exposure open. Each strategy can have benefits and drawbacks, so it’s important to understand what strategies are being used for your investments.

Keep an eye on the big picture

Exchange rates move daily and are affected by a number of factors.

These movements can mean that the performance of your personal portfolio might not always align with the headline numbers you might see in media reports about foreign markets.

This isn’t a problem, as long as you understand what to expect and how it fits into your wider investment strategy.

Want to talk?

At SHARE, we know that international investments can bring added diversification and potential opportunities, but they can also be more complex than keeping your investments local. Currency movements, global events, and market conditions all play a part in shaping your returns.

If you’d like to understand more about international investments, we’re here to help. Your SHARE investment adviser can answer any questions, whether it’s about the performance of your portfolio or how your investments are responding to changing conditions.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.