For a well-constructed portfolio, I would always expect to see a good diversification not just of different assets, but also a geographical spread, says MR MONEY MAKER
Where in the World to Invest?
For a well-constructed portfolio, I would always expect to see a good diversification not just of different assets, but also a geographical spread. Just a cursory glance at the news shows us how varied the global economies are, and we should all look to invest accordingly. A warning though – all may not be as it seems.
It would be easy just to buy into the stock indices around the globe (like the S&P 500 in the US or Malaysia’s FTSE Bursa –30) and seemingly that is your global investment. However, what you may see as an investment in that country may in fact turn out to be a rather narrow range of assets, rather than the broader range of other companies that you might want to invest in.
The exciting – and risky – investment returns from growing nations are very attractive, and often higher than the more pedestrian stocks from mature economies. So research is needed here before you leap in.
Spreading the net: Just a cursory glance at the news shows us how varied the global economies are, and we should all look to invest accordingly
The good news is that there are many ways of addressing this. One is buying individual companies from an overseas country, though the trading and other additional costs can make this quite expensive and a higher risk. You can buy an ‘active’ fund which will invest in the area of your geographical interest. This merely means that it is run by an investment manager. Be careful of costs here as well, and look at the historical performance of success, or otherwise of that manager. Or you can buy a ‘passive’ fund. These are usually much cheaper than the active funds, but will merely mirror or duplicate the index.
These can also be called ‘tracker’ funds or more often these days Exchange Traded Funds (ETFs). Apart from their usually very appealing low annual charges, they are easy to trade often and like an ordinary share. You could also, though, buy the FTSE 100 and/or some of its constituents. Compared with the huge US indices which are very domestically focused, the FTSE 100 by capitalisation of its members is roughly 60 per cent global.
To a great extent, this has been an historical feature dating back to the days of Empire. More recently, though, London is seen as being very cosmopolitan and attracts international companies wanting a broader investor base and better liquidity. Also they may be companies which wish to avoid the rather inquisitive US regulatory examination.
Some examples of individual global stocks would be Unilever, with huge brands from ice cream to face cream and washing up powder. Another would be Diageo with their global booze labels from Guinness to Gordon’s.
Personally, I find low cost ETFs are the cheapest and most cost effective way of getting good international exposure to the geographical area you want, along with ‘portfolio of brand’ companies, such as Unilever and Diageo on the basis that ‘I like the product so I bought the shares’.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally