Global share markets performed strongly in the first half of 2024 against the backdrop of downward trending inflation and interest rate cut expectations.
Pockets of the global share market produced extraordinary returns, resulting in different investor outcomes, with those not invested in some areas of the market missing out.
Share markets in major economies, such as the United States, have been the main winners in the 6 months to the end of June. The US economy has been remarkably resilient, with economic activity higher and inflation trending downward, despite elevated interest rates. This unexpected strength translated into stellar equity market performance. For example, 5 out of 11 sectors in the US S&P 500 returned over 10% in the first half of the calendar year!
It's clear that if you're not holding international shares in your portfolio, you're missing prime investment opportunities.
Strong results so far
Unsurprisingly, the US Technology sector (+27.8%) has been the main standout, driven higher by the rapid development of Artificial Intelligence (AI) and data centre and cloud related technologies.
The key takeaways from international company results this year so far included:
- Big technology names associated with AI continued to outperform
- Company earnings guidance for the next twelve months has been better than expected
- Consumers remain healthy, despite more controlled spending
- Performance gaps have persisted between sectors and regions (making investment selection more important)
- Analysts see the potential for earnings growth to broaden out beyond AI and big tech in 2024/25
What this period has really shown is that it pays to diversify internationally.
For example, if you had been solely invested in the Australian share market in the first half of 2024, you would have returned around 4.2%. This result pales when compared to the 14.4% returned by international share markets.
Importantly, getting access to international markets isn’t just about chasing returns, it's about accessing diverse exposures that do well at different times. Ultimately, doing so can improve your overall portfolio performance and stability of returns.
By looking at certain share markets, we can understand how different they are and see why a diversified portfolio can benefit you.
For example, in Australia, our share market (ASX 200) is made primarily of the big four banks (21% of the market) and major miners (14%), with very few technology stocks (3%). Conversely, the US share market is predominately made up of technology stocks (31%), with very few miners (2%).
While these are reflections of our respective economies, the comparison serves to show how not being invested abroad can limit your exposure to important growth opportunities like AI in the technology space.
How do we compare?
Beyond just gaining access to overseas markets, targeted international allocations can improve your chances of success by ensuring your portfolio remains dynamic and adjusts to what is going on in the world.
If you were invested in the Cutcher & Neale International Shares Model Portfolio over the last 12 months you would have returned 27.8% compared to the 19.9% provided by the global share market.
Part of this outperformance has to do with our investment process, which favours quality companies that are consistently growing profits, have strong balance sheets and maintain sustainable competitive advantages in their industries.
Our approach is also risk-aware, meaning we tactically adjust the amount of cash held in the portfolio, the level of currency hedging being applied and the geographies and sectors invested in based on global economic conditions.
Our International Shares Model Portfolio
Here's a breakdown of our Cutcher & Neale International Shares Model Portfolio, including its top performers and their returns over the past 12 months.
Compared to Australian equities, international shares have performed impressively so far in 2024 as inflation trends downward and economic growth remains robust, despite higher interest rates.
The Cutcher & Neale International Shares Model has done especially well. Thanks to our rigorous investment process and active management of geographic, sector, cash and currency exposures, it has outperformed the global share markets.
Don’t miss out on the gains you can make by limiting yourself or your portfolio. Get in touch with one of our trusted advisors today to find out how you can benefit from international shares.
Wade is the head of the Investment Services division at Cutcher & Neale and has over 15 years of industry experience in accounting and investment advisory roles.
Wade guides his division on the belief that investment portfolios should be built on transparency and flexibility. His expertise focuses on direct portfolio exposure to both Australian and Global Investment markets.
