Australians who want to invest outside their own borders should use opportunities, not geography, to frame their portfolio diversification, a Fidelity International portfolio manager has said.
"I don't think you need geographic diversification for the sake of geographic diversification," Fidelity's Kate Howitt said.
"If you said, 'I need to be diversified geographically', you'd just put your money into all the markets of the world - and I see no reason to do that."
Howitt said Australia's stock market offered two things other markets did not. She said the franking regime made Australia one of the best markets in the world because investors could avoid double taxation on their dividends.
She added that Australia's two-speed economy provided diversification other markets did not.
"I think you need diversification because of the sources of value creation. Here you get value creation from the mining boom. When that tapers off, other sectors come to the fore," she said.
However, she said the domestic market was not a one-stop shop and some sectors could only be accessed by looking offshore.
"There are opportunities global equities can offer that we're not going to be able to match here. We don't have a healthcare sector of any size, we don't have a technology sector of any size, luxury goods, auto manufacturing, all of those," she said.
"I would be diversified by opportunity."
She said any diversification strategy needed to be accompanied by a debate on active versus passive fund management.
"If you're going to invest overseas, there's no question you want to go active for two very good reasons. One is the world is a very big place and you want to focus where the opportunities are.
"Number two is Australia is one of the best markets in the world in terms of corporate governance. If you're going to step outside of that, you want your fund managers to do due diligence on the companies they're going to invest in."
