The Lemon Fool

How many people would even think of investing in the UK if they didn't live there?

If I went onto fool.com discussion boards how many people would I find somewhere saying "I think the UK market is worth a punt"?

Surely people should invest where they think will do best, not just because they happen to live there?

Late to these posts
I decided years ago that the US was a winner and I wanted some of the action
Coincided with discovering Trackers and Vanguard/John Bogle
His advice to US investors was to buy nothing but US stocks and bonds-it was all they needed-it seemed to e to be true historically and would probably be so going forward -never bet against the US!
So went for a Global Tracker which made my portfolio 50% US 4% U.K. etcetc
I did the same with my Bonds which as I am 74 retiree are the major part of my portfolio (bonds were hedged to the Pound)
It has done the job for me
xxd09

There is definitely a more favourable environment in the US for capitalism and stock market investment which will hopefully continue after the election. When I worked for a US firm and used to visit the New York office people would talk about their stock picks or even just the stock market generally at lunchtime or in the bar in the evening. You rarely get this in the UK I find.

I’m invested 45% in the UK, 40% in Europe, and the rest in the US and Japan.

The FTSE 100 is indeed crap. It’s full of companies pleasing shareholders rather than investing for the future. UK small caps have done well over the last 5+ years. European small and mid caps have done well. We are good at creating, and selling, small companies. They tend to get bought up by US companies. We like to brag about how much we made, the US like to create big businesses. There does seem to be more entrepreneurial flare across the pond.

I’ve done well from my UK investments. Admittedly not trackers, but a FTSE 250 tracker is not so bad. The HSBC FTSE 250 tracker has returned 8.56% / year over ten years. That’s not on par with a US tracker of course. But it beats miserable FTSE 100 trackers.

Yes, many FTSE100 companies are mature businesses in declining industries, paying dividends not covered by real profits and slowly eating themselves in the process. There are some good companies in there but they are in the minority.

So global diversification is important and taking a view on the long term political stability of an area is also important. China may have very attractive qualities in terms of growth prospects but I am not at all sure that the benefits of Chinese economic success will accrue to western shareholders in the longer term.

The UK nearly swung to a political position not at all favourable to capitalism. Much less likely to happen in the US but anything is possible long term.

There is no reason not to diversify now geographically. I grew up in an era where the papers were always UK stockmarket oriented. That attitude is long since past its sell by date!

scrumpyjack wrote:Yes, many FTSE100 companies are mature businesses in declining industries

Which industries?

Oil? Yet despite many cries to the contrary, and excepting the covid blip, Global oil consumption continues to rise

Pharmaceuticals? Banking and financial? Consumer goods? Hospitality? Mining? Shopping? Energy? Communications? Real estate? Chemicals?

Yes, the FTSE100 is missing some sectors, tech being the most obvious, but that doesn't mean the sectors it represents are declining.

BoE

MrUnsure wrote:Surely people should invest where they think will do best, not just because they happen to live there?

Home bias is a hazard but there's devil in the detail.
'The author believes that this study makes a convincing case to seek a high exposure to global (or international) equities, while keeping a tilt towards domestic equities. Some readers might perceive otherwise, but should by now have more factual material to refine their thinking and possible temptations of home country bias.'
https://www.bogleheads.org/blog/2020/03 ... ld-part-3/

JohnW wrote:

MrUnsure wrote:Surely people should invest where they think will do best, not just because they happen to live there?

Home bias is a hazard but there's devil in the detail.
'The author believes that this study makes a convincing case to seek a high exposure to global (or international) equities, while keeping a tilt towards domestic equities. Some readers might perceive otherwise, but should by now have more factual material to refine their thinking and possible temptations of home country bias.'
https://www.bogleheads.org/blog/2020/03 ... ld-part-3/

Correct me if I am wrong, but doesn't "domestic" in the context of that article mean "USA"? It is not suggesting that every country's citizens will do best by investing most in their own stock market. Average annual return from UK stock market, for last 6 years 4.2%, from the USA about 16%. But how to be mostly invested in the part of the world that is going to do best, from any given moment, is a tricky question. Let's hope that reversion to the mean will help the poor old FTSE which, after a brief revival before the New Year, is now trailing behind almost everything else in my porfolio, yet again.

regards,
S

Yes, wrong I think. 'domestic' meant the home market of any one of 16 countries (UK being a country!).
No, definitely not suggesting everyone would do best with mostly their own country's stocks.
Yes, it looks at more than 6 years of data.
The UK market at 4.2%/year is about 8%/yr behind a global average. A global average is a fairer comparison than against USA, after the event. And UK market is 5% of global, so the underperforming UK market has under-delivered the global investor 5% of 8% (0.4%/yr for 6 years) times whatever proportion I have in stocks. Sad enough I suppose.
Another extract:
'In Part 1 and Part 2, we took the position of a local investor in one of 16 countries of interest and we explored opposite approaches of either investing 100% global or 100% domestic. In Part 2, it became clear that global bonds tend to hurt local investors, while global stocks definitely helped for most scenarios. It is now time to try a middle ground and study portfolios mixing global and domestic stock investments. We will notably look at the mitigation this could bring to the countries having fared the worst, but also consequences for countries having fared better. Of course, it is easy to look at such numbers in hindsight and draw hasty conclusions, so let’s keep in mind that nobody could have predicted winners and losers ahead of time.'

seekingbalance wrote:So the FTSE100 including reinvested dividends went up by 3 times - versus 11 times for the Nasdaq index alone

You've convinced me. I've reduced my ftse holdings and increased nasdaq, and am looking forward to getting 11x my money in 12 years time!

SteadyAim wrote:

seekingbalance wrote:So the FTSE100 including reinvested dividends went up by 3 times - versus 11 times for the Nasdaq index alone

You've convinced me. I've reduced my ftse holdings and increased nasdaq, and am looking forward to getting 11x my money in 12 years time!

Liverpool won the First Division championship 11 times in 17 years between 1973 and 1990. They then waited 30 years for the next such victory.

History isn't always the best guide to the future, and it can be just as useful looking forwards as backwards in making predictions.

seekingbalance wrote:As I pointed out - even including total return the S&P500 has returned more then double the FTSE and the Nasdaq more than 4 times over 11 years. And this is not isolated or cherry picked. It is pretty consistent over numerous time periods

Just run the figures for UK (FT All Share total return) versus Pound adjusted US (S&P500) total returns since 1896 and for all 10 year periods (calendar year granularity) US won in 56% of cases, median case 1.34 times more than the UK's 10 year gain. When the UK won its median gain was 1.32 times more than the US's 10 year gain.

Given the US was more a emerging market over that period its not surprising to see some positive bias, however otherwise it looks relatively close to 50/50 overall.

Noteably if using average rather than median then there was a distinct difference, 1.55 versus 1.36 i.e. the US had some pretty high up-runs at times.

A issue is that the UK is more inclined to sell rather than cherish/protect its silverware. If firms/sectors do well then they're let go to the likes of the US/others, in some cases at what later proves to be at bargain price levels. A consequence of 5 year political short-termism and a toothless geriatric upper house.

Can you run that again, but from 1986 rather than 1896?

I'm all for a bit of a long term comparison, but 125 years ago is surely not even remotely representative of the last 25 or 35!

seekingbalance wrote:Can you run that again, but from 1986 rather than 1896?

I'm all for a bit of a long term comparison, but 125 years ago is surely not even remotely representative of the last 25 or 35!

True but the problem that then arises is you have just 25 (and overlapping) data points available if you want to do any meaningful statistical analysis. You won't be able to derive anything statistically significant, and would be subject to recency bias too.

Take your choice which is the greater fault.

Wonder if the original poster and nasdaq enthuiasts have had a change of mind since Sep 20.

Uk economy seems to be booming at moment.

One of my investments FSV has gone up 73% in past 12 months (I've not held for the full 12 months). So much for UK being a bad place to invest? Sep 20 would have been the perfect timing to invest heavily on the UK stocks.

Adamski wrote:Uk economy seems to be booming at moment.

Don't confuse the economy with share prices.

Multiple reasons. One being that shares are forward looking.

A lot of research has been done on the link between economic growth and the growth in that country's stock market, and share prices are not necessarily a function of growth in the economy of that country.
There is a correlation, but only around 0.3 or so.

https://www.bnymellonam.jp/wordpress/wp-content/uploads/2012_024_e_WLBStock.pdf
Interesting research here.

Adamski wrote:Wonder if the original poster and nasdaq enthuiasts have had a change of mind since Sep 20.

Uk economy seems to be booming at moment.

One of my investments FSV has gone up 73% in past 12 months (I've not held for the full 12 months). So much for UK being a bad place to invest? Sep 20 would have been the perfect timing to invest heavily on the UK stocks.

If you had bought in Jan 2020, the increase (~10%) would not have been quite that impressive.



Source:

https://www.google.com/finance/quote/FSV:LON

FTS 250 hasn't done so badly over the past year

Source: screengrab from
https://www.bbc.co.uk/news/topics/cjl3llgk4k2t/ftse-250

SteadyAim wrote:

seekingbalance wrote:So the FTSE100 including reinvested dividends went up by 3 times - versus 11 times for the Nasdaq index alone

You've convinced me. I've reduced my ftse holdings and increased nasdaq, and am looking forward to getting 11x my money in 12 years time!

There's a lot of discussion here that suggests that the future will look like the past. I'm not sure if it is in jest. Let's hope there isn't mean reversion in equities or that Nasdaq bet will burn hotter than a dot com stock in 2000!

Personally I am betting on a broad spectrum of developed markets with a skew to UK small caps and PE on top.

AWOL wrote:There's a lot of discussion here that suggests that the future will look like the past. I'm not sure if it is in jest. Let's hope there isn't mean reversion in equities or that Nasdaq bet will burn hotter than a dot com stock in 2000!

Personally I am betting on a broad spectrum of developed markets with a skew to UK small caps and PE on top.

Yeah, my bad, I should have included some emojis, or better still, just said what I meant.

I'm a value investor, and my feeling is that good performance is often followed by bad, and vice versa. The FTSE 100 being at roughly the same level as 2000 - to me that indicates that it was a bad buy in 2000 and is a good buy now. As for the Nasdaq, there is certainly growth there, but I'm not qualified to say whether the price is reasonable just now. I do know the index construction gives very concentrated holdings, there is an argument that the equal weight version is a better (meaning more reliable) buy.