The Aussie dollar and the overseas investment drive
The Australian dollar, underpinned by commodities and Chinese demand, is at present powerful, and people are routinely talking about parity with the US dollar. Currency, in fact, is a big issue for funds investing overseas. Given the persistent appreciation of the Australian dollar, most offshore assets are declining in Australian dollar terms: nabCapital managing director and head of insurance and fund manager relations, Donald Hellyer, recently put out a paper on this theme. "Your decision on how much you hedge has been way more important to the investment return of your fund than which active manager you give an equities mandate to," he says.
There’s also a macro effect. "It is interesting because as Australia becomes a net exporter of capital, there is going to be a continual purchase of foreign assets by Australian investors, so investors hedging strategies may have more of an impact on the future value of the Australian dollar," Heelyer says. It hasn’t yet – the resources boom has seen to that – but over time the sums could be so great that it dents currency performance.