How to invest in Australian shares from New Zealand

As a New Zealander, there’s many reasons why you might want to invest in Australian companies. Firstly, a number of NZ companies like Xero list on the Australian sharemarket (the ASX), but not the NZX. Secondly, you’re probably already familiar or interested in many of the companies over there such as NAB (parent of BNZ Bank), AfterPay, or Woolworths. Or maybe you just want to diversify away from NZ’s tiny sharemarket. Whatever your reason, here’s a guide to how to invest in Australian shares for Kiwis living in New Zealand.

1. Funds

Investing via funds is an easy way to get exposure to Australian shares. You’ll get diversification across a number of Australian companies in one go, you won’t have to research companies in a less familiar market, and you’ll avoid having to deal with tax and foreign exchange complications yourself. Here are the options:

Smartshares

Smartshares offers six index funds that invest in the Australian sharemarket (fees in brackets):

  • Australian Top 20 (0.60%) – Invests in the 20 largest companies on the ASX
  • Australian Mid Cap (0.75%) – Invests in the 51st to 100th largest companies on the ASX
  • Australian Dividend (0.54%) – Invests in the 50 highest dividend paying companies found within the ASX 300
  • Australian Financials (0.54%) – Invests in financial sector companies found within the ASX 200
  • Australian Resources (0.54%) – Invests in resources sector companies found within the ASX 200
  • Australian Property (0.54%) – Invests in Real Estate Investment Trusts (REITs) found within the ASX 200

These funds can be purchased from the following channels:

  • InvestNow – offers the Top 20 and Mid Cap funds
  • Sharesies – offers all funds
  • Direct from Smartshares – offers all funds
  • An NZX broker – offers all funds
  • SuperLife – offers all funds (packaged as a multi-rate PIE)

Check out one of my index fund shootout articles for more details on each channel:

Further Reading:
Smartshares vs Simplicity vs AMP vs Kernel – NZ Share Index Fund shootout
Smartshares vs Vanguard vs AMP – International Share Index Fund shootout

Unfortunately none of the six Smartshares Australian index funds are particularly appealing. The offering is quite fragmented, with each fund covering very narrow segments of the Australian sharemarket (having 50 companies at most in each fund). In addition, the funds can have heavy exposures to certain industries – for example, the Australian Top 20 fund is 46.57% invested in the financials sector. I would much prefer if there was an Australian fund with broader market coverage, like an ASX 200 index fund (investing in the 200 largest companies on the Aussie sharemarket).

Want to know what specific companies each of the six Smartshares Australian index funds invest in? Check out this spreadsheet for the details!


Other funds

Outside of Smartshares, InvestNow offers a good number of funds that invest in Australian shares. Examples are (with fees in brackets):

  • APN AREIT PIE Fund (1.12%)
  • Devon Australian Fund (1.66%)
  • Fisher Funds Australian Growth Fund (1.83%)
  • Milford Australian Absolute Growth Fund (1.19%)
  • Pie Funds Australasian Dividend Fund (2.59%)

They also have a selection of Trans-Tasman funds that invest in both New Zealand and Australian shares. Examples are:

  • AMP Capital Australasian Property Index Fund (0.42%)
  • Devon Dividend Yield Fund (1.01%)
  • Fisher Funds Trans-Tasman Equity Trust (1.75%)
  • Milford Trans-Tasman Equity Fund (1.05%)
  • Mint Australasian Equity Fund (1.45%)

You can see how to find out what companies each of these funds invests in using the link below:

Further Reading:
Beyond the top 10 – How to see everything your fund is invested in

Unfortunately, these funds all have an undesirable feature – high fees! All these funds charge fees in excess of 1.00%.

2. Individual Shares

Funds won’t cut it for everyone who wants to invest in Australia. Firstly, none of the above fund offerings are particularly compelling, with either narrow market coverage, or high fees. Secondly, there are heaps of investors who want the control of selecting individual companies to invest in.

This is where brokers come in. For investing in individual companies on the NZX, we have Sharesies, ASB Securities, and Direct Broking as popular brokerage firms. For the US markets, we have Hatch. But what brokers give us access to the sharemarket of our closest neighbour Australia, the ASX?

ASB Securities/Direct Broking

ASB Securities and Direct Broking are two of your local broking options that gets you access to the ASX. ASB Securities is probably more convenient, as ASX trading is enabled by default when you set up an account with them. With Direct Broking, you need to fill in a separate application form to get started on ASX trading. Here’s a rundown of their fees:

Brokerage

You must pay brokerage fees each time you buy or sell shares through ASB Securities and Direct Broking. These fees are:

ASB Securities0.30%
Minimum charge $30 AUD
Direct Broking$29 AUD for trades up to $30,000
0.30% for amounts over $30,000

The brokerage fees are roughly in line with what they charge for trades on the NZX. However, they are still relatively high and are not ideal for people wanting to invest small amounts.

Foreign Exchange Margin

When you buy shares on the ASX, you must exchange your New Zealand Dollars into Australian Dollars. Both ASB Securities and Direct Broking can do this for you, but will charge you for this through a Foreign Exchange margin.

To illustrate this margin, the NZD-AUD exchange rate at the time of writing (31 January 2020) was 0.9655. This is also known as the mid-market exchange rate. Let’s see what happens when you exchange $10,000 NZD to AUD:

  • Mid-market rate – Exchanging $10,000 NZD to AUD at the mid market rate of 0.9655 would give you $9,655 AUD
  • ASB Securities – ASB’s NZD-AUD rate is 0.9526, lower than the mid-market rate. This would give you $9,526 AUD. That means there’s a hidden cost or margin of $129 AUD or ~1.3%.
  • Direct broking – Direct Broking’s NZD-AUD rate is 0.9577, which would get you $9,577 AUD. That’s a hidden cost or margin of $78 AUD or ~0.8%.
  • TransferWise – For comparison, TransferWise exchanges your money at the mid-market rate (0.9655) and charges a service fee. On our $10k transfer, the service fee would be $50.78, resulting in us recieving $9,605 AUD.

The margins also apply for bringing AUD back to NZD e.g. in the case of selling your shares. Let’s take a quick look at what happens when you exchange $10,000 AUD back to NZD:

  • Mid-market rate – Exchanging at the mid-market rate of 1.0354 would get you $10,354 NZD.
  • Direct Broking – Exchanging at Direct Broking’s rate of 1.0256 would get you $10,256 NZD. That’s a margin of $98 NZD.

Australian banks

If you have an existing Australian bank account with one of the big 4 banks (perhaps from living in Australia in the past), it may be possible to open a brokerage account with that bank:

Their brokerage fees are cheaper than ASB Securities and Direct Broking, starting at $14.95 AUD for nabtrade, and $19.95 AUD for the other firms. You could also use TransferWise to get your NZD over to your Australian bank account, which would save on foreign exchange fees.

3. Limitations of investing in individual shares in Australia

The limitations to investing in Australian shares are not dissimilar to the limitations of investing in other foreign countries. Here’s what you need to consider before investing:

Currency

The value of your shares will fluctuate as the exchange rate between NZD and AUD fluctuates. For example, an increase in the NZD-AUD exchange rate will result in your shares decreasing in value (in NZD terms). You must also pay foreign exchange fees/margins to change your money between NZD and AUD.

Dividends

You need to consider the logistics of how you will receive dividend payments from your investments. The first thing you should do after buying shares in an Australian company is to register for an account at the company’s share registry (most likely either Link, Computershare, or Boardroom) and ensure your dividend payment method is right for you. Here are the potential options:

  • NZ Bank Account – Some Australian companies allow you to pay their dividends as NZD into a New Zealand bank account.
  • Dividend Reinvestment Plan – Some companies allow you to reinvest your dividends into more shares in the company, instead of receiving a cash dividend, as part of the company’s Dividend Reinvestment Plan.
  • AUD Bank Account – You could have your dividend paid out into an Australian bank account, perhaps by opening a Foreign Currency Account with ASB.
  • AUD Cheque – You could send your Australian dividend cheques to Direct Broking, who can then process it into your AUD Cash Management Account.

Tax

NZ companies have imputation credits attached to their dividends, which reduces the amount of tax we pay on these dividends. Similarly, many Australian companies have Franking credits attached to their dividends. New Zealand investors cannot use these Franking credits to reduce their tax payable on Australian dividends, making the ASX a relatively unattractive market for dividend investing.

However, it’s not all bad. Australian companies that pay out Franking credits are typically exempt from the Foreign Investment Fund (FIF) tax rules which would usually apply to overseas investments. In this case, only the dividends from these companies are taxable. You can check whether an Australian company is exempt from the FIF tax rules here.

Further Reading:
What taxes do you need to pay on your investments in New Zealand? (FIFs)

Ownership of shares

When investing in overseas shares, a common arrangement is to have your shares held in the name of a custodian. This is the case with Hatch, where your investments in US shares are held by DriveWealth.

However, using the brokers mentioned above will allow you to hold your Australian shares in your name. They offer CHESS sponsorship which means you own your Australian shares under your Holder Identification Number (HIN). Your HIN is associated with your broker, but you can easily transfer your HIN, along with your holdings to another broker.

Final Thoughts

I don’t think there is any particularly compelling option available for Kiwis to invest in Australian shares. The current offering of funds is unattractive, and there is no low brokerage option (like Sharesies) for investing in individual companies. The door is open for a new service to come in and provide:

  1. A locally domiciled index fund that provides broad coverage of the Australian sharemarket (e.g. the ASX 200)
  2. A low cost broking service for the ASX, similar to what Sharesies has done for the NZX

But even though the offering isn’t as developed as we’d want it to be right now, I wouldn’t lose sleep over it. You can also get exposure to Australian shares as part of a global shares index fund, or potentially as part of your KiwiSaver fund. And like New Zealand, Australia is just a tiny part of the global financial markets – therefore I wouldn’t consider Australian funds or shares an essential component of your investment portfolio.

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Disclaimer

The content of this article is based on my personal opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.