Martin Hawes: Both home and away, knowledge is power

Recently I advised readers to get some investment capital offshore, possibly through managed funds. I have bought shares directly in places like Hong Kong, the UK, the US, Singapore and Canada and done reasonably well with them.

This is easy enough because these countries have much the same business environment as New Zealand: the language and jargon are similar and you can have reasonable confidence that the regulatory framework is trustworthy.

However, although I may buy a few shares at times in these countries, I have never invested all my offshore capital directly - I have still used managed funds to some extent. This is because although it is easy enough to get information on particular shares and the transaction is simple, I don't think I necessarily have a great "feel" for businesses in foreign countries.

Here, I can invest in a company and watch what's happening to it almost as a casual observer. If I invested in The Warehouse, I would see its shops and watch its advertising every day. If I invested in Ryman Healthcare, I could routinely walk past one of its rest homes on the way to get a coffee.

These businesses are familiar in my everyday life - I understand them and their place in the markets in which they operate.

You can't do that with most offshore companies. You may understand the numbers, but not have a great feel for the business on a day-to-day basis.

Emerging markets are a different story altogether and I would never bother to invest directly in these places - ever tried to read an annual report in Mandarin or a dividend statement in Czech? I always let the fund-management experts with people on the ground make those investment decisions.

There is one other choice to make: to invest in passive index trackers or actively managed funds. Generally you should go for passive funds that simply follow a particular index - for example WINZ, which can be bought on the NXZ, tracks global equities, giving very cheap exposure to offshore share markets.

There are many other passive index funds: ishares (www.ishares.

com) has an index fund which tracks just about every market imaginable, from China to Eastern Europe and from fixed interest to healthcare, commodities and real estate.

Only some of the actively managed funds beat the market, so you have to be careful when going outside the index trackers. This is certainly an area where you should take advice.

All Kiwis should have investments offshore - it is not necessarily difficult, even though the choice may appear confusing initially.

* Each week financial author Martin Hawes shares strategies to help you grow your wealth. You can email finance questions to info@wealthcoaches.net or andrea.milner@heraldonsunday.co.nz

www.wealthcoaches.net