But if we consider the top “UK” brands, what are we faced with? Gillette, McDonalds, Coca-Cola, Nike, Microsoft, Amazon, the ubiquitous iPod (part of Apple) – all American?
What of phones or cars even – Nokia, Siemens, BMW, Audi, Mercedes – European.
It has long been said in analysts’ circles, that in this day and age of the global village we can no longer compare BT to Cable & Wireless to get a good feel for the telecoms market – we must consider the likes of Telefonica, Deutsche Telekom, France Telecom and so on.
In addition, when looking for example at the oil and mining sectors, whose combined market capitalisations account for around 35% of the FTSE100, it is self evident that the very businesses in which they are involved are, by nature, global.
Even the banks are falling into a similar line of late whereby diversification is not just being achieved by diversification between wholesale and retail customers, but by geographical region also.
Investing directly in overseas equities has traditionally been an expensive business. This tends to be due to additional broker costs in the country in question, custody fees and even the fact that the shares tend to be “heavier” (that is, share prices are typically much higher per share), which is especially the case in the US. On top of this, investing overseas does not necessarily help in terms of diversifying risk. It has been shown that there is an extremely strong correlation between (a) US and UK share prices and then (b) UK and Europe, so if UK telecoms are down, this will reverberate around Europe.
But there are other factors at play from a practical perspective. Many international stocks are now quoted via the London Stock Exchange’s International Retail Service (prices quoted in sterling), are part of the Crest settlement system so easy to hold, and providing the stock market of the company in question is recognised by the Inland Revenue, can even be held in your ISA. It is also possible to get international exposure via funds, unit trusts or investment trusts, all of which Hargreaves Lansdown can help you with.
Overseas shares also act as a hedge against any economic problems in the UK, but come with their own risks, such as currency fluctuation. There are actually alternatives even in UK quoted companies – GlaxoSmithKline, for example, whilst being a FTSE100 company does most of its business Stateside.
Indeed, it has in fact been estimated that over half of the FTSE100 companies’ earnings are dollar denominated and, when one considers the variety the FTSE is host to, there is almost an argument for describing the FTSE100 itself as a diversified play. Think of the Anglo Dutch Royal Dutch Shell, Kazakhmys (Kazakhstan), Antofagasta (mining operations are mainly Chilean), Wolseley (around 60% of their business is US based), Standard Chartered (UK based but mainly Asian focused) and so on.
Whether you are considering investing overseas either directly or via a collective, investment opportunities exist beyond our own backyard.
We may actually know more about international shares than we realise.
If you’d like to read more free research, comment and analysis from me and the rest of my colleagues at Hargreaves Lansdown please visit our website at www.hargreaveslansdown.co.uk
Richard J Hunter
Head of UK Equities
Hargreaves Lansdown
www.hargreaveslansdown.co.uk