A Q&A with Dan Boardman-Weston on Overseas Investing
- Why is overseas exposure important? Can having a home bias increase risk?
Overseas exposure is crucial when creating a diversified portfolio. There are over 40,000 companies listed on global stock markets yet the UK only has 2000. By solely focussing on one market such as the UK you’re restricting your opportunities and missing out on some great investments.
Home bias is something that can be right or wrong (depending on your outlook, attitude to risk, et cetera) but over the last ten years it’s not been a great move to just be invested in the UK. The FTSE 100 has returned 109% including dividends, whereas the global stock market (MSCI All Country World Index) has returned just under 243% including dividends, (as at May 2022). Home bias may not always be a bad thing but it’s definitely restricted investors returns in recent history.
2. Do all investment platforms offer similar amounts of overseas listed shares/funds?
Most investment platforms offer pretty extensive coverage for investing overseas. There are a huge amount of unit trusts, investment trusts and ETFs that investors can access to gain broad brush or specific overseas exposures and most platforms also let you buy direct equities as well. Charges can vary quite a bit depending on the platform that you use and so it’s important to shop around to find the best deal depending on what type of investing you’re likely to be doing.
3. Can an investor invest in individual overseas shares?
Barriers are coming down but are the cost and tax implications prohibitive? Most platforms allow investors to invest in individual overseas shares. You need to be slightly cautious when investing directly in shares as they can be far more volatile than funds and can require much more research. If you do want to invest directly in overseas shares then you should check the different fees that investment platforms charge as these can vary quite a lot. Withholding tax on dividends can also make investing directly overseas less attractive and so doing plenty of research is essential.
4. What allocation to different geographies would you suggest a new investor to consider?
The first thing an investor needs to think about is their attitude to risk and how much exposure they need to, or are comfortable to have to equities in order to meet their investing goals. Once that question is answered then investors can choose their geographical asset allocation depending on a number of factors. If we look at the MSCI All Country World Index (ACWI) which is a global equity index that is constructed by market capitalisation then this gives a steer as to how you could passively allocate to different geographies.
Depending on your level of knowledge you could then tilt those weights to markets that you consider more attractive or take a completely bottom up approach and just focus on finding the best companies or funds, paying little attention to asset allocation. It has been shown that asset allocation is the major driver of investment returns and so it does need to be thought about carefully and it’s important that you have sufficient geographic diversification.
5. What are the pros/cons of using an investment platform?
Investment platforms tend to be cost effective when you’re a DIY investor and have the knowledge and ability to make your own investment decisions. If you’ve not got the time or the experience, then you’re better going to a financial advisor or a discretionary fund manager. These are more expensive options than an investment platform but your portfolio will be managed by professionals who are spending the majority of their time investing and researching the markets and this can lead to better results.
At BRI Wealth Management we have a team of experienced investment managers and a portfolio management team that can advise on suitable funds and create a portfolio tailored for you. If you would like to discuss your requirements with us, please email invest@brigroup.co.uk or call us on 01676 523 550.
