Global equities will provide investors with exposure to the next phase of capital growth, according to research from Morningstar.
Morningstar’s Global Equity Sector Wrap Up found that global equities offer a greater level of exposure to many of the investment themes that are likely to provide high future returns, such as technology, health care and consumer cyclical sectors.
“We maintain a strategic overweight to global equities relative to Australian equities, which means generally that we think it is important for investors to be well diversified into global equities,” Morningstar research analyst Kathryn Young told InvestorWeekly.
While valuations in global equities are not as compelling as they were throughout the end of 2012, Morningstar research still indicates that there are opportunities to be found in the global equity market.
Ms Young said that valuations research done by the research house found that a comparison of price to intrinsic value found that most of the opportunities in the equity market were found outside of Australia and New Zealand.
“Even though valuations [in equities] might seem elevated around the world, it continues to be a good time for investors to consider allocating assets,” said Ms Young.
“Research still indicates that despite the fact that the level of [equity] valuations globally is more elevated than it was six to eight months ago, there are still many total return opportunities available around the world.”
While low asset flows since the global financial crisis has made global small-cap unappealing, Morningstar suggest that they could provide a strategy for further diversification within a portfolio.
However, Morningstar said that investors should allocate no more than 10 per cent of their portfolio to global small-caps as a result of their increased volatility and high correlation with large-cap equities.
