Understanding Investment Diversification: The Critical Role of Australian vs International Equities
November 19, 2025
By Luke Volker, Partner and Senior Financial Advisor, Scone
Investment diversification remains the most powerful risk-management tool available to everyday Australians, yet many portfolios suffer from a silent killer: home-country bias. Despite the ASX representing just 2% of global market capitalisation, the average Australian self-managed or industry super fund still holds 30-70% in domestic assets. In 2025, with the ASX 200 trading at a 15% premium to fair value and global tech giants driving returns, understanding the distinct roles of Australian and international equities has never been more important.
Why Home Bias Hurts Australian Investors
Australia’s market is uniquely concentrated. As of October 2025:
- Financials: 29.8% (CBA, NAB, ANZ, WBC, MQG)
- Materials: 24.1% (BHP, Rio, Fortescue)
- Top 10 stocks: 48.2% of the ASX 200
This means a single sector downturn—such as iron ore prices falling 18% in Q3 2025—can drag your entire domestic allocation down, even if the global economy is booming. Meanwhile, the MSCI World ex-Australia Index returned 18.4% annualised over the past five years, driven by the “Magnificent Seven” US tech stocks that barely feature on the ASX.
The Distinct Roles of Each Allocation
Australian Equities – Income + Franking Credits
Role in portfolio: Reliable income and tax efficiency
Key advantages:
- Fully franked dividends averaging 4.8% yield (ASX 200 Accumulation Index, September 2025)
- 30% imputation credits effectively boost after-tax yield to ~6.9% for top-bracket taxpayers
- Lower volatility than global peers (ASX 200 annualised standard deviation 13.2% vs MSCI World 16.8%)
- Natural currency hedge – no AUD/USD exposure
Best used for:
- Retirees needing tax-effective income
- Defensive allocation during global uncertainty
- Capital-stable core holding in super (especially Hostplus Choice Income or AustralianSuper Balanced)
International Equities – Growth + True Diversification
Role in portfolio: Capital growth and risk reduction through low correlation
Key advantages:
- Access to 10,000+ global companies vs ASX’s ~2,000
- Exposure to high-growth sectors missing domestically: semiconductors (NVDA +142% in 2024-25), cloud computing (MSFT, AMZN), biotech
- Negative correlation during Australian resource busts (e.g., 2022 iron ore crash vs NASDAQ +28%)
- Emerging markets exposure (China A-shares, India) for long-term demographic tailwinds
Best used for:
- Anyone under age 55 with 15+ year horizon
- Growth tilt in super (AustralianSuper High Growth: 45% international)
- Rebalancing opportunities when ASX outperforms
Evidence: 20-Year Performance Comparison (to 30 Sep 2025)
| Asset Class | Annual Return | Annual Volatility | Worst Drawdown |
| ASX 200 Accumulation | 9.1% | 13.2% | -47.2% (GFC) |
| MSCI World ex-Aus (unhedged) | 10.8% | 16.8% | -54.1% (GFC) |
| 50/50 Blend | 10.3% | 13.9% | -44.8% (GFC) |
The blend delivered higher returns than pure ASX with only marginally higher volatility—classic diversification benefit.
The Missing Tech Engine: Australia’s Biggest Structural Gap
Australia has almost zero exposure to the global technology revolution. The entire ASX technology sector (IXJ) is just 2.1% of the market—smaller than Woolworths alone. Our largest “tech” names are not true tech at all:
| ASX “Tech” Stock | Actual Business | 2025 Weight |
| WiseTech Global | Logistics software | 0.6% |
| Xero | Accounting SaaS | 0.4% |
| TechnologyOne | Enterprise software | 0.2% |
| Total ASX tech | ~2.1% | vs 29% in MSCI World |
By comparison, the US S&P 500 has 29.4% in information technology. The seven largest global tech companies (Apple, Nvidia, Microsoft, Amazon, Meta, Alphabet, Tesla) have a combined market cap larger than the entire ASX. A single day’s move in Nvidia now shifts global indices more than the entire Australian tech sector moves in a year.
Over the past five years to September 2025:
- ASX Information Technology Index: +11.2% p.a.
- Nasdaq-100: +23.8% p.a.
- Gap: 12.6% per year of missed growth
That’s the difference between turning $100,000 into $170,000 (ASX tech) or $290,000 (global tech) over five years—before franking credits are even considered.
Final Word
Diversification isn’t just about owning more things—it’s about owning different things that behave differently when you need them most. As we move from 2025 to 2026, with Australian valuations stretched and global growth accelerating, reducing home bias isn’t just “going overseas”—it’s simply catching up with the rest of the world.
If you rely solely on Australian equities, you are effectively betting that banks, miners, and supermarkets will outperform AI, cloud computing, semiconductors, and electric vehicles for the next decade. History says that’s a losing bet. International equities aren’t optional—they’re mandatory for anyone who wants exposure to the most powerful wealth-creating sector of the 21st century.
To find out more, contact Brooks and Partners for expert financial advice.
This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs.