Managing risk when investing internationally

Managing risk when investing internationally

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There are many ways investors can gain exposure to global stocks and shares, including through managed funds and exchange traded funds (ETFs). For those interested in investing in overseas or emerging markets, here are some risks you should consider: 

  • Political, economic and regulatory risk – When investing internationally, you are exposed to country-specific risks, such as political, economic and regulatory changes. While it might be easy to keep up with these developments in Australia, it may be harder to monitor what's happening in other markets. Investors also need to understand the laws and regulations relating to foreign investments in overseas territories.
  • Information - It can be difficult to find up-to-date information on foreign companies and assets. Some overseas firms may not provide investors with the same type of information as Australian companies, or they may have different legal and accounting standards.
  • Currency risk - Foreign investments are usually held in the currency of the country of origin. Any income, capital gains or losses are further affected by the performance of the Australian dollar (AUD), which means that in addition to stock-specific risks, investors are exposed to movements in exchange rates. If the value of the AUD rises against a particular currency, the value of investments held in that currency will fall. Conversely, a fall in the AUD will increase the value of your investments.

There are undoubtedly benefits and risks of global investing. Fidelity is an active manager, which means we aim to outperform the index and actively manage the risk of our funds. We recognise that a major risk in emerging markets stems from poor corporate governance or balance sheet structures. In the Fidelity Global Emerging Markets Fund (Managed Fund) (ASX:FEMX)  our investment process is designed to mitigate these risks and concentrate on areas where we can add value:

  • We have on-the-ground analysts in emerging markets who research and analyse companies, their competitors and suppliers. They have a deep understanding of the regions in which they operate and fully understand the inherent political, economic and regulatory risk associated with each country.
  • We identify companies with a track record of robust corporate governance, then select the 30–50 firms that are best positioned to generate returns through market cycles. This offers investors an excellent opportunity to receive some of the most attractive returns in emerging markets over time, while minimising downside risk.

Investors should note that the exposure to international securities in the Fidelity Global Emerging Markets Fund (Managed Fund) (ASX:FEMX)  will not be hedged back to Australian dollars. This means that the value of an investment in the Fund will change not only on the basis of a change in asset values but also because of movements in exchange rates.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. The Target Market Determination (TMD) for Fidelity Australian product(s) can be found at www.Fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise.

© 2022 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

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