Investing in the UK

[Dod101]

Revenue exposure of FGT based on underlying holdings:

UK - 34%
USA 23%
Europe 19%
Asia Emerging 12%

Thanks. I am surprised that the UK exposure is as high as that, I wonder if Nick Train bothers about that or if he simply buys what he regards as great companies?

Dod

A bit about his mindset from my old friends at Morningstar https://www.morningstar.co.uk/uk/news/2 ... -i-am.aspx

Thanks. I must say that I am always bemused when I read of people doing fairly detailed geographical breakdowns of their investments, such as 'I need x% exposure to the US', or China or whatever. I am much more interested in trying to find a decent investment. Despite what some have said FGT is not exactly a UK facing Trust.

Dod

[mc2fool]

Revenue exposure of FGT based on underlying holdings:

UK - 34%
USA 23%
Europe 19%
Asia Emerging 12%

Did you get those figures from some easy publicly available (to all) source, and if so, where? Or did you get them by hard graft?

[DavidM13]

Revenue exposure of FGT based on underlying holdings:

UK - 34%
USA 23%
Europe 19%
Asia Emerging 12%

Did you get those figures from some easy publicly available (to all) source, and if so, where? Or did you get them by hard graft?

I got them from my Morningstar Direct terminal so not hard graft it took me two minutes! They have full holdings data for all equity investment companies. They then have a reference data base for all of of these underlying holdings that covers everything about them including where they derive their revenues. Its a pretty cool tool and a bit of an eye opener for those who think they are getting UK exposure.

CTY is very similar. 86% UK according to the f/s but 33% revenues from the UK and 28% from USA.

[Lootman]

The main point is surely diversification. One day the UK ITs may do well. Finsbury has not done too badly has it? But then it is not UK focussed to any extent. Most of its investee companies are trading overseas.

Revenue exposure of FGT based on underlying holdings:

UK - 34%
USA 23%
Europe 19%
Asia Emerging 12%

The problem with doing that kind of look-through analysis is that it creates the illusion that you are globally diversified when you may not be, for at least two reasons:

1) The cited holdings are historical and might have changed since the fund last reported its holdings, and

2) A UK company that has most of its business overseas is still exposed to UK-specific risks such as tax risk and regulatory risk. That alone is an important reason why this kind of faux overseas exposure is not as effective as actually owning foreign companies via a IT whose mandate is to do that.

So I have always held the view that you need direct investment in foreign markets rather than rely on this kind of second-hand exposure.

[Dod101]

I absolutely take your point Lootman. You could also add my usual ' culture' to the benefits of holding overseas shares. I think the Covid problem has shown that the UK Government is not particularly in partnership with UK business and we rather lack some of the qualities that are seen in the US for example of 'get up and go ism'.

Dod

[Adamski]

Point of note UK had best month in November since 1989 +12.4%. Today ftse 100 up 1.7%. Which backs up what I was saying yesterday. Ftse so beat up, that likely to outperform with any cyclical rotation to value, until catches up with pre pandemic levels.

[SalvorHardin]

A UK company that has most of its business overseas is still exposed to UK-specific risks such as tax risk and regulatory risk. That alone is an important reason why this kind of faux overseas exposure is not as effective as actually owning foreign companies via a IT whose mandate is to do that.

So I have always held the view that you need direct investment in foreign markets rather than rely on this kind of second-hand exposure.

One of the best examples I can think of where UK investors refused to consider foreign companies was when Warren Buffett's Berkshire Hathaway bought the BNSF railroad back in November 2009. Soon there were lots of articles pointing out that British investors could "follow Buffett" by buying UK quoted companies with interests in railways such as First Group. This idea was quite popular on TMF, with First Group featuring in a lot of articles (and posts) and a lot of people on TMF bought First Group shares.

I pointed out a few times on TMF that Union Pacific was the closest thing you had to BNSF, by geography and the nature of the American railroad business (freight, not passenger like First Group). I topped up my Union Pacific holding (and bought some Canadian Pacific).

On TMF the vast majority of posters refused to consider buying shares in Berkshire Hathaway and/or another American railroad. The shares had to be quoted in London or they wouldn't touch them (think of Gollum saying "nasty foreign shares"). First Group got a lot of interest because it also gave investors some American exposure as it had owned Greyhound Lines ("Greyhound Bus") since 2007. That the bus business is completely different from rail freight didn't seem to matter.

First Group shares are down by something like 85% since then. My Union Pacific topup over the same period is up by about 670%

[mc2fool]

Did you get those figures from some easy publicly available (to all) source, and if so, where? Or did you get them by hard graft?

I got them from my Morningstar Direct terminal so not hard graft it took me two minutes! They have full holdings data for all equity investment companies. They then have a reference data base for all of of these underlying holdings that covers everything about them including where they derive their revenues. Its a pretty cool tool and a bit of an eye opener for those who think they are getting UK exposure.

Ah, ok, so easy but not publicly available (to all) then (or, at least, not freely).

I do think though that your "think they are getting UK exposure" and Dod's "FGT is not exactly a UK facing Trust" is a somewhat bizarre and tangential way of looking at things.

Of course where companies get their revenue from is interesting and certainly a useful bit of knowledge to have, I don't decry that. But as we all know, 75% of FTSE 100 and 50% of FTSE 250 earnings come from aboard, and that is surely part of the very nature of UK exposure, that the UK's medium-larger businesses trade internationally. And I expect it's similarly so, to some degree or another, with most large(r) companies in most countries.

So will the two of you be poo-pooing people who buy an S&P 500 tracker for thinking they are getting US exposure when in fact 42.9% of its revenue is non-USA (2018)? And let's not let anyone think their Nikkei tracker is getting them Japanese exposure when Japanese companies generated 58.3% of their sales abroad (2015)!

Shock, horror!!!

(And it looks like the CAC 40 and DAX have even smaller domestic earnings than the FTSE ... https://www.ft.com/content/13fd791c-38d ... 6bde01c544)

[DavidM13]

Sorry, not poo pooing it, I was merely advocating what an interesting metric it is! Its just another way of analysing ones overall diversification and I mean that if someone has say 33% USA, 33% UK and 33% Asia Trusts they may *think* they are also diversified revenue wise in that way but it could look entirely different. Obviously not the sophisticated members of this board though!

[mc2fool]

Sorry, not poo pooing it, I was merely advocating what an interesting metric it is!

Indeed, that it is.

As a matter of interest, and if it's not too difficult to do, are there any ITs in UK All Companies or UK Equity Income that have more than 50% of their underlying revenue from the UK. (My guess is that the obvious place to find those would be UK Smaller Cos).

[DavidM13]

Yes. You will have to pick the bones out of this as not sure how to format it.

Name Association of Investment Companies (AIC) Sector Revenue Exposure by Region % UK

Chelverton Growth Trust Ord UK Smaller Companies 86.03990
Schroder UK Public Private Trust plc Growth Capital 75.14641
Investment Company Ord Flexible Investment 72.90599
Downing Strategic Micro-Cap Inv. Trust UK Smaller Companies 66.14490
Aurora Ord UK All Companies 65.97292
Independent Ord UK All Companies 61.63138
Athelney Trust Ord UK Smaller Companies 61.30368
Gresham House Strategic plc UK Smaller Companies 60.81555
Acorn Income Fund Ord UK Equity & Bond Income 59.71044
Mercantile Ord UK All Companies 56.30222
Aberforth Split Level Income Ord UK Smaller Companies 55.93409
Aberforth Smaller Companies Ord UK Smaller Companies 55.92768
SVM UK Emerging Ord UK Smaller Companies 55.30255
Aberdeen Smaller Companies Inc Ord UK Smaller Companies 55.01717
Standard Life UK Smaller Co. Ord UK Smaller Companies 54.23202
Chelverton UK Dividend Trust Ord UK Equity Income 53.45301
JPMorgan Smaller Companies Ord UK Smaller Companies 53.27097
JPMorgan Mid Cap Ord UK All Companies 53.15271
Oryx International Growth Ord UK Smaller Companies 52.55345
Invesco Perpetual UK Smaller Ord UK Smaller Companies 51.94421
Henderson Smaller Companies Ord UK Smaller Companies 50.63319

[mc2fool]

Yes. You will have to pick the bones out of this as not sure how to format it.

Name        Association of Investment Companies (AIC) Sector    Revenue Exposure by Region % UK

Chelverton Growth Trust Ord             UK Smaller Companies     86.03990
Schroder UK Public Private Trust plc    Growth Capital           75.14641
Investment Company Ord                  Flexible Investment      72.90599
Downing Strategic Micro-Cap Inv. Trust  UK Smaller Companies     66.14490
Aurora Ord                              UK All Companies         65.97292
Independent Ord                         UK All Companies         61.63138
Athelney Trust Ord                      UK Smaller Companies     61.30368
Gresham House Strategic plc             UK Smaller Companies     60.81555
Acorn Income Fund Ord                   UK Equity & Bond Income  59.71044
Mercantile Ord                          UK All Companies         56.30222
Aberforth Split Level Income Ord        UK Smaller Companies     55.93409
Aberforth Smaller Companies Ord         UK Smaller Companies     55.92768
SVM UK Emerging Ord                     UK Smaller Companies     55.30255
Aberdeen Smaller Companies Inc Ord      UK Smaller Companies     55.01717
Standard Life UK Smaller Co. Ord        UK Smaller Companies     54.23202
Chelverton UK Dividend Trust Ord        UK Equity Income         53.45301
JPMorgan Smaller Companies Ord          UK Smaller Companies     53.27097
JPMorgan Mid Cap Ord                    UK All Companies         53.15271
Oryx International Growth Ord           UK Smaller Companies     52.55345
Invesco Perpetual UK Smaller Ord        UK Smaller Companies     51.94421
Henderson Smaller Companies Ord         UK Smaller Companies     50.63319

There you go. (With the help of http://lemonfoolfinancialsoftware.weebly.com/tableformat.html)

Well isn't that interesting ... although not surprising. Out of the 20+ ITs in the UK Equity Income sector only one has the majority of underlying revenue from the UK. All of the others, including stalwarts like City of London, Merchants, Murray Income, Dunedin Income, Edinburgh, Lowland, Schroder Income, Temple Bar, etc (and, of course, Finsbury) get most of their underlying revenue from outside the UK.

BTW, Growth Capital is a sector I hadn't noticed before ("Invests in unquoted shares. Generally takes noncontrolling stakes in early to maturing companies" it seems) but in looking up the one of its constituents in the list above (the ex-Woodford IT) I see the AIC's geographic breakdown is missing over 70% ... https://www.theaic.co.uk/companydata/0P ... /portfolio

[DavidM13]

Thanks for that. Yes. That is because Morningstar cannot "match" the underlying holdings in their reference database as its all unquoted companies. They should treat non equity funds differently with a more manual breakdown to counter such problems. I will raise it.

Growth Capital was created in May 2019 to differentiate between earlier stage Private Equity investments.