A fully flexible way to invest
3 minute read
Despite trade war spats and economic uncertainty, there are compelling reasons to look outside the home market for investments, such as enhanced diversification, and the potential for better returns.
Who's it for? Confident 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 professional independent advice.
While many investors will have taken advantage of the multi-year rally in UK shares since the global financial crisis, some may have overlooked attractive opportunities overseas. Despite trade war spats and economic uncertainty, there are compelling reasons to look outside the home market for investments, such as enhanced diversification, and the potential for better returns.
However, due to misconceptions about overseas investments many investors remain underexposed. Here, we look to separate some of the facts from the fiction.
Adding international exposure to a portfolio of UK shares can actually lower risk in a fund by increasing diversification. Spreading your money across countries where the economic cycles do not move in perfect tandem, should help reduce the variability of your returns because you are less dependent on the market performance of one particular country or geographical region.
It’s actually very simple to invest overseas, particularly if you invest in a global fund. These types of funds provide you with diversification benefits by investing across multiple companies, sectors, and geographic regions. With a potential universe of thousands of companies to choose from, it makes sense to buy a fund and let the investment manager conduct the research and identify the best investment opportunities available.
Global share markets tend to perform in cycles with one country typically outperforming the other for a period of time before the business cycle turns. For investors, timing the cycle can be challenging and being underexposed at the wrong time could mean losing out when the market changes. Even when the business cycle favours the US market, overseas markets can still offer higher returns. Emerging markets were the top performing asset class in 2018 although past performance is not a guide to future performance.
Investing internationally involves some element of currency risk as the overseas currency – for example, US dollars – will be constantly fluctuating relative to sterling. If the value of the dollar increases against the pound, it could boost your overall return when you sell your investment, but if it falls and sterling strengthens you could lose out when your money is converted back to pounds.
This is an additional risk that you need to be aware of when considering investing overseas. However, it is something fund managers take into consideration in the running of their funds, so if you pick a good fund that offers strong long-term growth potential, hopefully currency risks won’t overshadow the benefits international exposure can give to your investment portfolio.
International exposure is an essential part of a diversified fund, and can provide enhanced diversification and increase the potential for better returns over the long term. It's crucial for investors not to let misconceptions get in the way of a sensible investment strategy.
Investing overseas is not without risk. However, it is these risks which can create mispricing opportunities. Active managers have the skill and resources to exploit these price mismatches and use them to deliver returns in excess of their benchmarks and passive tracker funds.
The Barclays Ready-made Investments are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest across a range of asset classes and regions, offering a globally diversified one-stop solution for investors.
Alternatively, the Barclays Funds List may help you to narrow down the wide range available to invest in. These funds are selected by Barclays investment specialists and, based on our research, they’re the funds that we believe have the potential to generate consistent returns over the medium to long term. One such fund would be the Janus Henderson Global Equity Income Fund (accumulation units).
If you’re looking to invest in emerging markets, you may want to consider the Barclays GlobalAccess Emerging Market Equity Fund. Each GlobalAccess fund is expertly managed by Barclays, who appoints and carefully blends one or more investment managers to invest a portion of the fund’s assets with the aim of outperformance. Many of these leading managers are unavailable to retail investors in the UK other than through Barclays.
You should only be thinking about holding these investments for at least five years as they’re designed for the long term.
All of these investments can fall in value as well rise; you may get back less than you invest.
These are our current opinions but the future, as ever, is uncertain and outcomes may differ.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.
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