The notion that fund managers are somehow hindering the expansion of Australian companies by demanding ever-higher dividends is a “myth”, argues Colonial First State Global Asset Management.
Speaking at a roadshow in Sydney, Colonial First State Global Asset Management's (CFSGAM's) head of research, David Wilson, said Australian fund managers actively encourage companies to undertake expansion.
“There’s a myth that I want to deal with: the thought that Australian fund managers just want a dividend returned to them,” Mr Wilson said, rejecting claims that fund managers do not want companies to invest, make acquisitions, or expand internationally.
In fact, the opposite is true, he said, pointing CFSGAM’s recent interaction with insurance firm IAG as an example.
IAG “screwed up” with an expansion into the UK in recent years, Mr Wilson said, leading to the group announcing the sale of its UK operations in December 2012.
The firm has more recently also pulled back from its Chinese expansion, although it has small operations in Malaysia, Indonesia, India and Vietnam, he said.
“We’ve said, no guys, we think you’ve got the necessary scars, experience, the processes to undertake that international expansion,” Mr Wilson said.
In fact, it has been at the urging of Australian fund managers that Australian companies have been “quite successful” in undertaking expansions, he said.
The international expansion of Macquarie Group is another example of an Australian company successfully venturing overseas, he said.
“They’re now earning 75 per cent of their earnings outside Australia with a return on equity above Goldman Sachs and Morgan Stanley,” Mr Wilson said.
There is significant “vitality” within the Australian stock market, which has produced global leaders such as James Hardy, CSL, Aristocrat and Brambles, according to Mr Wilson.
“It has been by investing in these types of companies that [CFSGAM has] been able to consistently outperform [the market],” he said.