Some of us are old enough to remember when Remington razor company owner Victor Kiam advertised his products on television with the slogan “I liked the product so much, I bought the business”. It was a publicity sensation in 1979, but Kiam’s strategy remains attractive to investors today.
Buying stocks allows investors to own a portion of the businesses they use every day. And being a customer gives investors an edge because they have first-hand experience of the company and a window into what’s going right and wrong.
But what can investors do when so many of the brands we know and use every day, from Disney to Apple and Samsung, are listed on foreign stock exchanges? The good news is that it is possible to buy overseas listed shares if you are based in the UK. The less good news is that you pay more fees and may have to deal with additional administration.
Big screen: it is possible to buy stocks listed overseas, like Disney which makes films like Encanto, if you are based in the UK
Choose familiar names from overseas
The UK stock market is full of world-class energy companies and banks. But to access a wider range of sectors, investors need to look further. For example, European stock exchanges are home to some of the best luxury goods companies – including LVMH, maker of Louis Vuitton bags – while Japan has strengths in electronics and robotics. The United States is home to most of the world’s major tech companies.
We asked investment experts for their top picks of companies that are household names in the UK, but aren’t listed here – companies they believe will continue to thrive with a strong brand.
Keith Bowman, an analyst at investment platform Interactive Investor, is excited about the future of U.S. automaker Ford, which is competing with Tesla for electric car market share.
“I think Ford will become the number two electric vehicle manufacturer in North America,” he said. Ford is investing more than $30bn (£22bn) in the production of electric cars. Its shares are up 82% over the past year, but still look cheap compared to Tesla, up 6% over the past year.
Bowman also likes Disney and thinks investors currently have a good opportunity to buy as the stock is down 13% this year after missing its earnings forecast.
Disney investors own a slice of the Marvel superhero franchise, animated film giant Pixar and Star Wars movies and merchandise – all of which are now under the Disney corporation.
It has also reopened its theme parks and relaunched its cruise ships after shutdowns during the pandemic. “Subscriber growth and a broader recovery should continue over the longer term,” Bowman says. Russ Mould, chief investment officer of the AJ Bell platform, said investors should look to Western Europe for global leaders. “Some of the high-quality names investors should be looking for should just roll off the tongue,” he says.
“The French LVMH is the leader in luxury and the Swiss Nestlé in consumer brands.” He adds that the continent is also a good source of dividends for income seekers.
Jason Hollands, managing director of investment platform BestInvest, likes US-listed sneaker brand Nike. Thanks to its loyal customer base, Nike has the power to pass on costs when necessary – and to reduce the number of retailers selling its products to instead refocus on selling through its own website and stores where profits are more students.
Darius McDermott, managing director of investment platform Chelsea Financial Services, says investors should look to the US for the big tech companies we use every day.
Alphabet – which owns Google – and delivery giant Amazon are both US-listed picks. Cheap options aren’t either. Alphabet’s stock price is up 39% over the past year, while Amazon’s is down 16% over the same period, after falling 17% in the past month alone .
The Best Ways to Buy Foreign Listed Stocks
Most investment platforms and stockbrokers allow you to buy stocks overseas, but there may be additional fees.
These come in two forms: a platform charge for buying the shares themselves and an exchange “margin rate”, which is a percentage added to the exchange rate between the currency you are using and the currency you are using. in which the stock is listed. to make profit for the company doing the trading.
If you frequently trade foreign-listed stocks, these fees can add up. For example, although Interactive Investor charges investors the same fees for buying US stocks as they do for UK stocks (up to £7.99 per trade), it charges investors £19.99 for two of its subscription plans to buy shares listed outside the UK.
Not all platforms charge additional fees for buying stocks overseas. AJ Bell charges £9.95 to trade international stocks online and £29.95 to buy them over the phone, which is the same as UK-listed stocks.
Hargreaves Lansdown also charges the same amount – £11.95 online or 1% if dealing over the phone.
However, additional costs related to currency conversion can still weigh on the performance of investments. The foreign exchange “margin rate” means that you lose money every time you convert currencies with your broker to buy stocks abroad.
Generally, the more currencies you can convert at once, the lower the margin rate you are charged, which means you may want to buy large amounts of foreign stocks at one time.
Interactive Investor has a margin rate of 1.5%, which means you will be charged 1.5% more than the interbank rate, which is what the major institutions charge among themselves. This rate decreases if you buy large amounts of shares.
You can also hold cash in an overseas account and use it later, which means you can avoid higher fees by converting large amounts in one go.
In the bag: Luxury brand LVMH’s stable includes Louis Vuitton handbags
Hargreaves only allows you to hold balances in sterling, and when you buy shares overseas you’ll be charged up to 1.5% above the interbank rate, depending on the size of your transaction. You should also be aware of the costs when you receive dividends in a foreign currency which must be converted back into sterling before they are paid out to you.
Investors may also be required to pay withholding tax, which is levied by some countries on foreign shareholders who receive dividend income. It may be possible to reclaim this tax from certain countries, where the UK has an agreement in place known as a double tax treaty.
The US government imposes a 30% withholding tax on all income from US investments for non-US residents.
UK investors can apply for a rebate, so the maximum they pay is 15%. Germany also has a 25-30% withholding tax charge, but you can also reclaim some of it in order to pay 15%.
You use different complaint forms for each country. For example, a W-8BEN form in the United States.
Hollands reassures, “The good news is that the W-8BEN is inexpensive and has you covered for three years.”
Investors in foreign stocks should also be aware of what experts call “currency risk”.
If a stock is traded in a different currency, the movement of that currency against the pound can erode or magnify your returns. For example, if you invested in a fund that tracked the S&P 500 (the main US stock market index), the returns you receive will differ depending on whether you look at them in pounds or dollars.
In pounds, the total returns for the last five years are 103%, but in dollars, they add up to 120%.
Funds can hedge currency risk
If the thought of extra fees and fears of currency exchange deter you from buying names known overseas directly, you might want to consider investment funds that hold them.
These always carry currency risk, but some use a strategy known as “hedging” to control it.
The principle of coverage is simple. It is a way of managing risk by taking an opposite position in something related to the risk you hold in order to offset it. Life insurance is a way of “covering” the risk that one of the main breadwinners in our family will be unable to provide for us. A fund manager can use a financial instrument known as an “option” to mitigate the risk that any currency movement will have a negative impact on the portfolio he manages.
James Carthew, head of investment companies at QuotedData, likes Polar Capital Technology for those who think the recent drop in tech stocks is temporary. Its largest holdings include Microsoft, Apple, Alphabet, Facebook parent Meta, and graphics giant NVIDIA. Shares of Polar Capital Technology have fallen 11% over the past six months, but overall earnings have risen 90% over the past three years.
A less racy tech option could be Alliance Trust, which has exposure to Alphabet, Visa, Microsoft, Amazon and Facebook. But they represent only 15% of its portfolio. Ryan Hughes, head of investment research at AJ Bell, chooses Fidelity European investment trust for access to European brands. It is up 33% over three years.
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