Four reasons to consider going global

18 July 2019

3 minute read

Although investing close to your home market sounds safe, our researchers are giving you reasons to explore beyond. Here is how you can discover opportunities to invest beyond the UK market.

Who's it for? All Investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

What you’ll learn:

  • How global funds can help with diversification.
  • How you can gain exposure to sectors which may be under-represented in the UK.
  • Why it’s important to understand exactly what you’re buying into.

Investors willing to look beyond the UK will find plenty of opportunities in global stock markets, with an array of funds that invest on an international scale.

Here, we look at four reasons why investors might want to consider global funds, and some of the risks involved in investing in this sector. We don’t offer advice, so if you’re unsure where to invest, please seek professional financial advice.

Going global can help with diversification

It might feel safer as an investor to stick just to your home market – after all, you’re more likely to be familiar with companies based on British soil rather than those based overseas. However, bear in mind that many of the companies listed on the FTSE 100 index are large, multinational businesses, which often generate most of their sales abroad. Although this means they aren’t entirely reliant on the UK economy, it still makes sense to spread your investments globally to help protect yourself against any potential setbacks which may occur if, for example, we see a disorderly Brexit.

Global funds invest in a wide range of stocks across world markets, with this broad focus potentially helping to minimise the impact of stock market shocks on a portfolio. For example, if one region or sector suffers a knock, hopefully gains elsewhere will help offset these losses.

You can gain exposure to sectors which may be under-represented in the UK

There are certain economic sectors which tend to be under-represented in the UK. For example, most of the biggest technology companies, such as Facebook, Amazon and Netflix, have their headquarters in the US, whilst Japan is home to many companies at the forefront of high-tech manufacturing, such as Hitachi, Toshiba, Sony, Nissan and Honda.

In contrast, the UK’s FTSE 100 index of Britain’s biggest companies is heavily weighted towards oil and gas and financials.1 Investing globally rather than adopting a purely domestic focus can therefore help provide a better balance of sectors, further helping with diversification.

You can invest in companies across a range of different markets

Global funds can invest in companies in any country across both developed and emerging markets, with the latter enabling investors to gain exposure to economies that are still very much in the development phase.

Several different factors present a positive long-term outlook for emerging markets, such as India and Brazil, including young populations, a rising middle class, economic growth and industrialisation.

However, emerging markets are not for the faint-hearted, as they can be volatile and politically unstable. They also often have weaker standards of corporate governance, and fewer rules to protect investors compared to developed countries.

Yet bear in mind that if a country is developed, that doesn’t mean it is immune from risk. All countries have their own unique set of economic and political risks that might result in investment losses.

There are plenty of opportunities for income-seeking investors

Many investors seek a reliable and consistent income stream and there are plenty of companies around the world which recognise the importance of sharing profits with their shareholders.

When you invest in funds you can usually choose either income units which will pay out income to you as cash, or accumulation units where the income is re-invest instead - if you don’t need the income, the latter can be a good way to potentially boost your returns over the longer term.

Funds in the global sector that focus on income and invest across a wide range of countries include the Janus Henderson Global Equity Income fund and the Jupiter Ecology fund. Please note that our mentioning these funds is not a personal recommendation, and if you’re unsure where to invest, you should seek professional financial advice.

Remember the risks

If you’re considering investing globally, make sure you’re comfortable with the risks involved.

Markets outside the UK may have lower levels of corporate governance, with fewer safeguards for investors, and they may also be more volatile.

There’s also currency risk to consider. If you invest in shares that are priced in currencies other than sterling, any gains you make could be offset by a fall in value of the particular currency against the pound. If, on the other hand, the foreign currency strengthens, this will have a positive impact on returns. It’s a good idea to invest across a range of different countries and currencies, so that if one currency does fall against sterling, hopefully rises in other currencies may help limit your losses.

Bear in mind too that all investments can fall as well as rise and you may get back less than you invested. Past performance is not a reliable indicator of future performance.

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