Where in the world to invest?
For a well-constructed portfolio, I always expect to see not only a good diversification of different assets, but also a geographic spread.
A cursory glance at the news shows us how diverse global economies are, and that we should all invest accordingly. One caveat though – not everything may be as it seems.
It would be easy to buy into stock indexes around the world (like the S&P 500 in the US or Malaysia’s FTSE Bursa-30) and appear to be your global investment.
However, what you may view as an investment in that country may actually be a narrow range of assets, rather than a broad range of other companies you wish to invest in.
Exciting – and risky – investment returns from developing countries are very attractive, and are often higher than those from more pedestrianized stocks from mature economies. So research is needed here before making the leap.
Spreading the net: A cursory glance at the news shows us how diverse global economies are, and we should all invest accordingly
The good news is that there are many ways to address this. Buying individual companies from a foreign country, although trading and other additional costs can make it quite expensive and high risk. You can buy an ‘active’ fund that will invest in your area of geographic interest.
It simply means that it is run by an investment manager. Be mindful of the costs here as well, and look at the historical performance of success, or otherwise of that manager. Or you can buy a ‘dormant’ fund. These are usually much cheaper than active funds, but they will simply mirror or duplicate the index.
These may also be called ‘tracker’ funds or more often exchange-traded funds (ETFs) these days.
Aside from their typically very attractive low annual fee, they are often easy to trade and are more like a common stock. However, you can also buy the FTSE 100 and/or some of its components. Compared to the huge US indices, which are very domestically focused, the FTSE 100 is about 60 percent global by capitalization of its members.
To a large extent, this has been a historical feature of the days of the Empire. Recently, however, London is seen as too cosmopolitan and attracts international companies seeking a wider investor base and better liquidity. Also, they could be companies that want to avoid US regulatory scrutiny.
Some examples of individual global stocks would be Unilever, which has huge brands ranging from ice cream to face creams and washing powders. The other would be Diageo, whose global booze labels range from Guinness to Gordon’s.
Personally, I find that low-cost ETFs are the cheapest and most cost-effective way to get good international exposure in your desired geographic area, as well as those based on ‘brand portfolio’ companies such as Unilever and Diageo that ‘me Liked the product. That’s why I bought the shares’.
Justin Urquhart Stewart co-founded fund manager 7IM and is president of the regional investment platform