Under the Hood | Can I access global indexes through the ASX?

Bryce: [00:00:25] Welcome to another episode of Get Started Investing, a podcast where we attempt to answer the most common money and investing questions from our community to help us all become better investors. If you are joining us for the very first time, a massive welcome. Thank you for joining the Equity Mates community and congrats on starting your investing journey. We do strongly recommend that you scroll up and start at episode one. While we are licensed, we are not aware of your personal circumstances. So all information on this show is for education and entertainment purposes. Any advice is general advice only. With that said, my name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you?

Alec: [00:01:04] I'm very good, Bryce. Very excited for this episode. We are up to episode five of our Under the Hood series. We're getting halfway. We've covered some of the basics and now we're ready to spread out wings and go over. 

Bryce: [00:01:17] So it gets exciting from this point on. Not that the first four weren't exciting, but we were building a foundation. So we're asking how do we build a global portfolio? And we're not the only ones thinking it. We've got a question that has come in from the Equity Mates community, so let's give it a listen.

EM Community: [00:01:31] Hey, Equity Mates, you always talk about investing globally, but do I have to do that with a broker that lets me access overseas indexes? What can I access global indexes through the ASX. Is that possible? 

Bryce: [00:01:41] Awesome. Well, let's crack in. 

Alec: [00:01:44] Yeah, we're going global with Global X. 

Bryce: [00:01:46] That's it. No better partner. Global X are a leading player in the ETF industry with a robust platform of over 30 targeted products globally. They have a trusted reputation with over a million clients in 95 countries and are uniquely positioned to identify and analyse disruptive companies with their industry leading research team and global access. And we're welcome to it. Welcoming back one of the experts from Global X. Kanish Chugh, head of distribution. Kanish, welcome. 

Kanish: [00:02:11] Bryce, Ren, Thanks for having me.

Bryce: [00:02:13] So third, third time in the series Kanish.

Kanish: [00:02:17] Yeah. I don't know about that. We'll try our best. 

Bryce: [00:02:23] So, yeah, today's all about how do we build a global portfolio. And the ETFs that we're going to be discussing are the Global X Ndia Nifty 50 ETF, the ticker NDIA and the Global X Euro Stoxx 50 ETF ESTX. Both listed on the ASX but we're going under the hood on the euro. 

Alec: [00:02:44] Yeah. Can we just pause for a minute and just talk about the way that the Europeans label that index? It's like stocks stoxx and it's like Stoxx 50 Stoxx six Stoxx 600. 

Kanish: [00:02:57] So that would be because stocks are the index manager. 

Bryce: [00:03:03] I thought they were just trying to be cool. That's what makes sense because as we learned in the first episode with you Kanish, what's in a name the issuer and the index yes exactly the euro stocks with a double X. 

Kanish: [00:03:17] With the double x. 

Alec: [00:03:18] With the double x. So yeah, fair enough. 

Bryce: [00:03:21] I love it's one it's one of my favourite ones to say the Nifty 50. 

Kanish: [00:03:26] Again, the Nifty is the index provider.

Alec: [00:03:30] Oh, there you go. So even though we've just done that up so that still surprised. Yeah. 

Kanish: [00:03:36] It's like really. Is that what it is?

Alec: [00:03:37] The thing with Nifty 50 that always surprised me was there were a bunch of American stocks back in the day that were also called the Nifty 50. And so I was always like, did I like trying to conflate them? But that actually makes a little bit.

Kanish: [00:03:48] And maybe that was where the inspiration came from. I'm not 100% sure, but it's the index is run by the National Stock Exchange of India, and that's sort of the naming convention that they've used. 

Alec: [00:04:00] There you go.

Bryce: [00:04:01] Well, let's get stuck into it, because point I want to make at the top is that you don't actually need to go beyond the ASX here in Australia to get good global access to opportunities around the world. These days you can invest in the world's, the world's stock market from your local domestic exchange.

Alec: [00:04:19] Yeah, all of the world's biggest companies that are listed are accessible through global ETFs and we've mentioned a few indexes. In this episode we've mentioned Stoxx 50 and the Nifty 50 in a couple of previous episodes, the S&P 500 in the in America. But Kanish, what are some of the, I guess more popular or more commonly invested in indexes around the world? 

Kanish: [00:04:47] Yep. So I guess if you were to jump on the finance report, when you watch the news and you see those markets that have been reported, so you've got like the Footsie 100, you've got, you know, the euro. Stoxx 50, you've got, you know, the TSX 60 stats from Canada, the CSI 300, that's China, the Hang Seng, you know from Hong Kong they're sort of how you would represent it. So when you think about, you know, what are the biggest indexes or biggest market reference benchmarks of how I want to track how that particular country is going. That's all that region, that's what you normally refer to. 

Bryce: [00:05:27] So, yeah, we're able to invest. As you said, the USA, Canada, China, UK, Europe, India, Brazil, probably South America, somewhere. 

Kanish: [00:05:38] Not Through a ASX listed ETF. But I know you know, Global X over in the U.S. has Pakistan for example you know, and or Greece. Now you start to you can get sort of single country exposures here in Australia. There's over 300 ETFs. But still, I don't think we're at that sort of yet to some some countries not yet. But regionally you do get them as well through other Asia exposures or emerging market exposures. And then where we've seen development in some of those country exposures from an ETF side has been where, you know, there's been a true investment need or client demand and things like India come up. 

Alec: [00:06:17] So let's say we're interested in investing in a country like India. What are some of the key considerations we should consider when investing in an ASX listed India ETF? 

Kanish: [00:06:31] Okay, so I guess I'd like to throw back to you guys and just ask you, what does your portfolio look like from a country perspective? Do you know as well? 

Alec: [00:06:43] Yeah, I actually do a quarterly portfolio review and one of the things I do is, say, like not not country level, but continent like where my exposure is. And I can tell you right now that I'm heavily overweight, North America and Australia.

Kanish: [00:06:58] Okay. What about you, Bryce? 

Bryce: [00:06:59] Yeah, on the same. Yes. Overweight. Both. Yeah, I think we both have exposure, active exposure to Europe, to Asia. Yeah. Very heavy. 

Kanish: [00:07:08] Very heavy US. Okay. So I looked at the MSCI World Index. So that's basically every country represented in terms of equities. And Australia was 2.15% of that index. The US was 67.6%. So that just gives you an idea from a market perspective how overrepresented some of those countries are. But yet from the Australian perspective, Australian investors always have that home bias. And so that sometimes then flows through is why am I looking at other countries? And the reason why I'm looking for other exposures from other countries is diversification purely and simply you need to diversify your portfolio. We've seen in the past year or so that if you are heavily invested in a particular country like the US, your portfolio would have underperformed. But had you been diversified into other countries, whether it be, you know, Europe as a region, whether it be Asia, individual countries within Asia, emerging markets, you would have out I wouldn't say outperformed, but your returns may have been more smooth, sort of smoothed out or the volatility may have been sort of lower based on recent times. So it's about diversification. 

Alec: [00:08:26] I think there's an additional build to that, which is that investing in the stock market is the one area of your financial life where you can actually break your home country bias. Like your job is tied to the country that you work in. So you're going to get paid in Aussie dollars by a company that's operating in Australia. And then the house that you buy, like the property that you invest in, generally it's to live in it. So it's going to be exposed, it's going to be in Australia. So you're so exposed to the Australian economy, the one area where you can break out of your home country bias is in investing and it's never been easy to do it. 

Kanish: [00:09:00] It's never been easier to do it. And I guess why has that been the case? So if you think about it, it's what we know is basically what creates the choices that we make. So if I think about historically, 20 years ago, the Australian investor portfolios were very much just direct shares. So that's Australian stocks. You then started to get from an ETF side some exposure through and access into other markets. But again, it was very US centric as well, either global or US, and then it's Australia. And so when I look at that, I'm basically looking at investor portfolios and that's what they're sort of leaning towards. So one, it's access and now there's no excuse for that because you now have access. There are many different countries, as you said, that you can get access to different countries, different regions. So one of the key parts of why go international, it's that diversification element. It's also getting access to other areas of the markets of building into your portfolio. So if you're looking for a growth portfolio, for example, what would happen there? Would you just go into the US to have sort of very focussed just on and within the US you look at the sector where it's very tech heavy for example. So then you've got an overweight towards certain sectors or certain themes. Now if I wanted to then broaden that out and look at Europe or look at India or look at Asia, you're getting exposure to one different countries that are operating under different considerations and environments operating on their own path. And that can be good or bad. You know, we've seen with Europe, it's sort of trotted along with Brexit, you know, off the back of the financial crisis. We've had some, you know, concerns geopolitically as well that have destabilised during certain short term periods. But actually, Europe right now, the past 12 months has been one of the leader performer, leading performers from a regional perspective. So getting exposure, diversifying, not just from a country, but different, I guess, investment thesis within your portfolio. 

Bryce: [00:10:53] Another consideration that a lot of the community have when looking at investing globally is currency. How should we think about currency when investing through ETFs? Some of the terminology that is often thrown around is hedged, unhedged, so helps unpack that a little bit. 

Kanish: [00:11:08] So when you invest in different countries, you're going to be exposed to different currencies. So that can also be a good thing as well. Again, it's that diversification element because currencies will be sometimes influenced by varying factors. You know, the US dollar somewhat influenced and has an overarching, I guess, influence over many different other currencies. But the euro, for example, may have other influences away from the US dollar. So you've got exposure and diversification, so you've got country diversification, you've also got currency diversification, which can actually be beneficial at times to an investor's portfolio where people go hedged a non hedge. So basically if we unpack that, that's essentially hedging out that currency fluctuation. So trying to just look at the performance of that underlying market. There is no right or wrong with that. What I would say is it really depends on the investor what sort of risk they want to take and where that currency could be. There's a lot of argument to say that long term unhedged, that is is sort of the right approach. And if you were to be more tactical with that hedging element, that could be a way around it because you just go long term investing in Europe, whatever happens around Europe, that's the thesis around it because I want that diversification within my portfolio, but also I'm investing in what does Europe represent and you know, the growth story around Europe or around Asia or around India. Now, when you look at currencies that can materially impact the portfolio and if you take the wrong timing. So, you know, we often talk about time in the market, not timing the market. When you're hedging, you're essentially timing it because you're trying to time the currency based on how it's going to move. So is that a risk? Are you, you know, well sort of research that in terms of is that the right time? When do I exit out of that position? So that can also be, you know, potentially add greater complexity to your portfolio, I would say. So just be aware of that. In terms of hedging, it's hedging out that currency volatility, but it's you have to somewhat time at side speak to an investment professional definitely around, you know, those aspects and that is more of a tactical decision versus a strategic decision.

Bryce: [00:13:16] Most ETFs, well, in fact, all ETFs will make it clear whether or not you're buying a hedged or unhedged.

Kanish: [00:13:22] It's we have to. So it's in the naming convention. So the ASC, so the regulators actually make sure that the providers actually have in the name of the fund if it's hedged or unhedged. And so we will have that. 

Bryce: [00:13:35] My personal opinion, if you're just getting off the ground and looking to invest, is to not worry about it. My personal opinion, I think at an early stage, if you're thinking about de-risking with currencies and those sorts of things, it's just not something that if you're setting up a portfolio, you need to be worrying about. 

Kanish: [00:13:54] You're adding Complexity. 

Bryce: [00:13:56] Yeah, Yeah, exactly. If you're then trading big dollars and have strategic reasons to do it and of course it can make sense. 

Kanish: [00:14:04] So for example, we have seen recently with certain clients they have gone traditionally unhedged, but then a portion of that unhedged allocation, they've gone hedged, but they've tactically made that decision and it's very timely. It's time sensitive, it's a trade, it's a tactical trade that they've made, but they're in the markets. They know what they will. They're researching their investment professionals and they're going down that path. So the good thing is for a lot of investors here in Australia, the option is available to them, you know, for that choice. And that's what we're trying to achieve here as an ETF providers, you know, we're trying to democratise investing, we're trying to give investors choice. We're going to try to give them the tools that they can use. And it's not just us, it's all the other issuers as well. And that's the goal there. 

Alec: [00:14:52] Well, I think this is the point where we should go under the hood. We said we were looking at two ETFs today, the Nifty 50 and the Euro Stoxx 50 ETF. Both of them can give you access to international markets. But we figured just to keep it really simple, we'll just go under the hood of one of them. We've chosen the Euro Stoxx 50 because we recognised more of the company names or although Bryce claims is an India expert, so he reckons he understood all of them and he recognised all of them in both. But let's start where we start with all of these under the Hood episodes. When we look at an ETF, what's it Trying to do its purpose. How does it try and do that? The index of trucks. And how much does it cost to get access to that? So what is this ETF trying to do?

Kanish: [00:15:39] So with the global Euro Stoxx 50 ETF, it tracks the euro STOXX 50 index essentially at a high level it's the 50 largest companies from the eurozone region so that's no UK exposure. 

Bryce: [00:15:52] Yeah it's what is it 20 countries or something. 

Kanish: [00:15:55] Like that roughly in the. 

Bryce: [00:15:56] European Union. So fees for this is 0.35% or 35 basis points in the performance. So over the last year, Ren, a return of 24.7%. 

Alec: [00:16:10] If I could whistle, I would right now. 

Bryce: [00:16:14] And over the last five years, a return of 8.08%. So. 

Alec: [00:16:20] Per year. 

Bryce: [00:16:20] Per year, Yeah. So pretty phenomenal given the turmoil that is still in my mind over the last 12 months that Europe has gone through and is still going through. For it to be ripping 24% in the last 12 months is pretty phenomenal. 

Kanish: [00:16:36] It's funny because when you go under the hood of that ETF, you actually realise why that potentially is as well. 

Bryce: [00:16:41] Luckily we were under the hood.

Alec: [00:16:44] Let's do it. 

Bryce: [00:16:45] All right, so geography top holdings. In terms of geography, 41% of it is exposed to France, 26% to Germany and 14% to the Netherlands, the top three countries there. 

Alec: [00:16:58] I'm going to be honest, this surprised me because Germany is the biggest economy in Europe and we have quite familiar with a lot of German companies, you know, like the car makers, the sports apparel companies, you know, Adidas, Puma, BMW, Mercedes,Mercedes is German, right? I'm not losing my mind. And France, there are some companies that we've spoken about on the podcast. LVMH, the luxury goods company, comes up a lot. But yeah, 40% from France. Full credit. 

Bryce: [00:17:31] Well, it's got to be over LVMH. 

Alec: [00:17:32] Well, why don't we get to the top holdings and unpack it? I think you're right, Bryce. I think LVMH is in there. But Kanish, what are some of the other names that we might be familiar with? 

Kanish: [00:17:42] So one of the biggest companies in the world that a lot of people or I think now everyone knows, but maybe they still don't. But ASML, So ASML produces lithography machines in the semiconductor industry. So essentially that's the machine that etches the basically onto the chips, the design onto the chips. So they're the only company that has that technology. So we've got this monopoly on the entire market. Basically, every semiconductor factory has to use an ASML lithography machine sells for hundreds of millions of dollars. It's just, you know, astronomical what ASML is doing. And that's the largest holding within this ETF. LVMH Moet Hennessy know, we mentioned that the second top holding, it's 7% now. It's funny because when I look down this list, you look at L'Oreal, that's they're in the top ten as well. You know, LVMH, L'Oreal was they listed in Europe. These are truly global companies. So a lot of people, when they invest internationally as well, and they think I'm investing into the European equity market, I'm getting just Europe. And yes, you are. But you're actually also you actually primarily also getting companies that are going to be having exposure globally from a revenue perspective. So when we do some of this analysis on that Euro Stoxx 50 index, you actually find that a majority of companies, more than 50% of revenue comes outside of Europe. So that is important to note because you're actually getting exposure to countries like China or countries like the U.S., you know, countries in South America, etc.. That's what you're getting truly global players. And when people look at those names, they are like, Oh, I didn't realise, you know, because and you're not going to get any of these names. By the way, if you invest in a US equity ETF, just you don't get that some of the other companies in that companies like Sanofi. So that's in that sort of medical space. You've also got Allianz, you've got Total energies. So Totalenergies is that energy producer. And it's funny, Totalenergies is also in the process of spinning off some of its non sustainable clean technology revenue. So they're trying to move towards that clean emissions and they're basically honing in just on that and they're spinning off some of the I guess how would you call that sort of the polluting sort of oil or the oils and things like that, because they're one of the world's major oil companies. They are, but they're working on how they move forward with net zero and how they move forward and what the future, you know, basically demand for energy looks like. 

Alec: [00:20:16] Yeah, a few other names that I was familiar with, SAP the big software player, Siemens, Schneider Electric, all I dealt with them at Kohl's didn't. Realise how big they were until I saw them in this ETF. But yeah. So some recognisable names. 

Bryce: [00:20:34] Yeah, big names in there. And that's one of the beauties of having exposure to a I guess a this isn't quite country but a area specific global index. 

Kanish: [00:20:45] But the other thing is if you look at the sectors, because I think that's important with the euro Stoxx 50 because at a sector level, you know, in 19.8% to consumer discretionary 18 and a half percent to financials, 14.3% to information technology. When we look back in our Australian market, it's financials and resources and that essentially is what we get exposure to. So having that diversification, yes, from a country perspective, but also from a sector perspective, it's that whole concept.

Bryce: [00:21:17] Well, gents. We will close by asking the question, where does it fit in the portfolio? And up until now, we've been generally erring on the side of satellite. But it does feel like this may be different. What are your thoughts, Ren?

Alec: [00:21:30] I think this is a call. It can be a call holding. I think it tracks a market cap weighted index. It's like as core as core can be. That's my feeling.

Kanish: [00:21:43] I would agree with you for the euro Stoxx 50 ETFs or ESTX. It can fit into a core allocation for an investor given where you also look at global markets, how much Europe has in terms of that weight, in terms of global equities and some of the global market. If I looked at India, India as an emerging market, to me that is a satellite exposure within a portfolio because it is also for that investors that are willing to take that extra little bit of growth or targeting growth. So there's an element of risk and volatility when investing in emerging markets. And that so for that product, India, I would say that's more in the satellite space within a portfolio versus Euro Stoxx 50 sits on that core. I think one thing for people to note is when they're looking at global equities or international equities like you did when you open up, you know, you do your quarterly review to actually work out and understand what exposure country exposure your portfolio has and, you know, go under the hood of your portfolio because you may be surprised that you may have some exposure to some of these countries if you've got investments in some thematic ETFs, for example. What I've been really surprised is some of the clean technology ETFs, whether it be on battery tech or hydrogen or uranium, for example, they are heavily overweight, Europe and Asia versus the US. So it's one of those things, again, probably a different market set and you're not getting the same types of stocks. So there is that element of diversification still to be had to and rationale to include these names still alongside. But just be aware of it. 

Bryce: [00:23:16] What we set out to answer the question, how do we build a global portfolio? And I hope we made it clear that you can do it easily from listings here on the ASX. You can do it from your bedroom, you can get access to some of the largest markets around the world simply through global index ETFs. There are some things to be aware of currency weighting towards countries where it's domiciled, those sorts of things. But the good news is that you can, as Ren said at the top, it's never been easier to get access to building global portfolios. So Kanish, thank you so much and thank you to Global X for sponsoring the Under the Hood series, which we are halfway through now. Global X is a leading player in the ETF industry, over a million clients in 95 countries and an amazing industry leading research team. So if you want more information on the ETFs that we've spoken about today, the Global X Nifty 50 or the global X Euro Stoxx head to globalxetf.com.au. Similarly, there'll be plenty of product information on all of the ETFs available on the ASX. Kanish, Thank you very much. Absolutely. Pleasure as always.

Kanish: [00:24:20] No, thanks for having me.