We believe that UK investors should not feel confined to the UK equity market when making their investment decisions.
The UK stock market only represents a fraction of the global investment universe and there are a number of sectors that are under-represented in the UK. To gain greater portfolio diversification, and to participate in some of the most compelling investment themes, investors should take a global perspective in their portfolio construction. International diversification can give investors access to higher structural growth opportunities than exist in the UK alone, and also reduce the risk of being exposed to a single currency, economy or political framework.
A diversified International portfolio can give UK investors greater access to faster growing regions of the world such as the emerging markets, as well as to sectors that are under-represented on the UK market. The most glaring example of this is the technology sector, which represents about 16% of the MSCI World index, but is less than 3% of the FTSE All Share index. Thus to get meaningful exposure to global technology, investors need to look outside the UK. By investing globally, UK investors can also get exposure to long-term secular themes that offer significant growth over many years, perhaps decades, and which may not be as accessible through the UK stock market. For example, the global leaders in cloud computing (an industry that we believe will continue to benefit from outsourcing and data growth), are listed outside the UK.
Investing overseas is not without risk. Investors may be exposed to currency risk, whereby the value of an international holding can be subject to fluctuations in exchange rates. It should be noted, however, that many UK companies conduct a significant amount of business overseas, so their performance could also be affected by global currency movements. International investing can also expose investors to political and regulatory risk and shareholder protection may not be as robust as in the UK. Additionally, international investors may incur withholding taxes on dividends that may not be able to be recovered, impacting the income an investor receives.
Investing in countries with stable political systems and shareholder-friendly regulations can help to mitigate some of these risks. We believe that the diversification benefits of investing internationally are strong and that UK investors should consider broadening their investment horizons.
We encourage you to contact your Investment Manager if you would like to discuss any of this further.
Alternatively, if you are new to Killik & Co, please do contact us on email@example.com.