Access Australia: How to Trade Down Under
There are basically three ways for US-based investors to buy Australian stocks.
You can buy on the Australian Securities Exchange (ASX) if your broker has direct access. ASX symbols, the first one listed when we first name a company in an article, generally comprise three letters. You should be paying in the mid-USD30s range as commission for such services.
Some firms require direct consultation with a specialist via telephone to place an order, a practical measure that at least one shop takes just to make sure you know that, in general, the order you enter during normal trading hours stateside may not be executed until the ASX opens for its next trading day in Sydney, which is 15 hours ahead of the East Coast of the United States.
You can also buy what is essentially the same share traded on the ASX on a US over-the-counter (OTC) market. These OTC symbols, typically listed second when we mention a company, consist of five letters, the last being “F.” Ask your broker if it charges a “foreign stock fee” for trading in OTC F-shares; some do, while others treat them as domestic securities for fee-and-commission purposes.
The third way to own publicly traded Australian equities is via an American Depositary Receipt (ADR), which can be either “sponsored,” which means the company itself has initiated the listing as part of concerted effort to raise capital in the US, or “unsponsored,” in which case a bank has enabled the listing. ADRs trade on the New York Stock Exchange (NYSE) as well as on US OTC markets. Shares traded on the latter are denoted by five-letter symbols ending in the letter “Y.”
Your broker will charge the same fees and commissions he charges you to buy and sell a typical American stock or he will lose your business, yes?
Trading on the ASX affords you the deepest liquidity and could actually save you in terms of costs over the long term, particularly if you engage with the market as deeply as outfits such as EverBank enable you to do. We have more on EverBank below. But let’s talk about a couple threshold issues of fundamental value that precede mechanics.
Our goal is to build a portfolio of Australia-based companies best suited to grow over the long term, generating superior total returns through a combination of dividends and capital gains. Once established we plan to hold for the duration, to enjoy the full benefits high-quality, growing businesses convey to their shareholders. We’ll trim positions to maintain portfolio balance. Dumping one will be a matter of a breakdown in the underlying business.
The bottom line, however, is that we’re unrepentant buy-and-holders, and, as my colleague Roger Conrad noted in the January Portfolio Update for AE, “we’re going to be sticking with our recommendations though the inevitable ups and downs of the overall stock market and global economy.”
We’re looking for productive assets, all over the world. The ability to sustain and grow dividends is the prism through which we evaluate “productivity.” It’s really as simple as that, and it’s an approach that need not be bound by borders, nor made impossible by fear of fees and commissions.
Once we buy a stock, we’re not going to be doing a lot of trading. We won’t be using stop-losses, either the hyper-popular trailing variety or otherwise. We won’t be leveraging our positions with margin or options, either. There’s plenty of potential growth without it.
We want to be diversified and balanced. That’s how we’re going to make our returns and avoid the danger of one bad stock blowing a hole in our portfolio.
We view initial recommendations as one-time moves. We take positions to stick with them, to collect dividends as they grow and pull the share price higher, to sell only when the underlying business weakens or when we need to take a partial profit.
This is the effective path for Americans investing abroad, as we’ve experienced with Canadian Edge, whose original portfolio constituents from July 2004 can be found remarkably intact in the February 2012 issue. This also means brokerage commissions and fees and other trading costs, including taxation, should be less of a concern for investors.
The level of service you get for your fees and commissions, on the other hand, can vary greatly from brokerage to brokerage. InteractiveBrokers, for example, provides a trading platform that’s second to none, with access to 19 countries, including Australia. InteractiveBrokers allows you to trade equities and other assets on markets around the world denominated in multiple currencies from a single account.
Like InteractiveBrokers, EverBank’s experience providing access to foreign markets is long and deep.
What the rest of the world knows as “football” but we call “soccer” had its latest stateside showcase in early February, as Rupert Murdoch’s Fox Network broadcast live a Barclays English Premier League showdown the morning of America’s secular holiday, Super Bowl Sunday.
Like all of us Frank Trotter woke up Feb. 5 well aware of its special status, but his first thoughts likely focused on West London and the ground of Chelsea Football Club, where shortly after 11 AM Eastern Time the home Blues took on coaching legend Sir Alex Ferguson’s Manchester United side.
But Frank hasn’t come to the international game lately; he’s been at it since the 1980s, when, with another entity, he made his first foray into global markets. He was among a pioneering group of bankers who thought, in his words, that “our clients should have the opportunity to place their cash wherever they want it around the world.
“We sought,” he explained during a recent telephone conversation, “from the beginning, to go beyond ‘normal,’ which was to park some funds in a US multinational and say ‘we’ve done our job.’”
What Frank describes as the “democratization” of global markets has evolved in parallel with the rise of global football on the American landscape. There remains enormous potential for both. Passion for making opportunities in Australia and other markets available to individual retail investors has led to a platform that allows US-based investors to diversify their portfolios at a reasonable cost. EverBank allows you to trade 21 different currencies in local markets, including Australia. Using a WorldCurrency account to fund your EverTrade account is an effective way to reduce fees associated with placing orders in the US with a US-dollar denominated account, having this amount converted and then placed with an Australia-based clearing house.
At USD35 per trade EverBank’s commission structure is competitive by design. Its focus is on providing a high-quality service sufficient for the needs of today’s self-directed retail investor.
As for trading Down Under specifically, according to Frank on the brokerage side of EverBank’s business the aussie is its largest-volume single currency these days.
Soccer is and has been the sport with the highest participation rate, even in the US, for decades. Developing an American audience has been a long, slow, fitful process. It’s not likely it will overtake our football as the most popular domestic sport. It’s not necessary that we like one but not the other; we can appreciate what happens on the international “pitch” as well as on the American “gridiron,” particularly when we can experience moments such as Juan Mata’s perfectly placed would-be game winner on Sunday morning that was matched only by Man U keeper David de Gea’s perhaps-to-be-equaled-but-never-surpassed save.
Investing abroad, like appreciating both forms of football, is about high-level performance. In athletics it’s exciting and entertaining in moments. For investors we’re concerned with building wealth over the long term. What outfits such as EverBank afford us, based on this recognition that high-quality businesses exist all over the world, is the platform to diversify in a cost-effectively. There are intricacies and nuances, but these are easily overcome when you consider the opportunity to protect and build wealth via productive assets.