View more on these topics

Investment view

Judging where to put your money abroad means taking acc-ount of often conflic-ting information, says Brian Tora.

Most individual investors are parochial in their outlook. After all, if you live in Truro and shop at Tesco, who can blame you for wanting your dividends to be paid in pounds? Of course, there is the fact that dealing abroad tends to be expensive. There is the currency translation costs – which can be considerable, particularly for small dividends – and there are also higher settlement and custody charges. Little wonder that many choose to achieve offshore exposure through collective investments.

As it happens, the UK has one of the more international markets in terms of the reach of our FTSE 100 firms. Our pharmaceutical giants are truly global businesses and our integrated oil companies compete on the world stage. Vodafone, the leading mobile phone operator in so many countries, is a UK FTSE 100 constituent. You could argue that you need look no further than our domestic market if it is international coverage you are seeking.

Unfortunately, this has not always stood investors in good stead. When world stockmarkets turned, our headline index was left behind by other major markets, a reflection of the fact that we have a bias towards the US in terms of earning power. Translating those profits into sterling from a weakening dollar did Britain’s biggest companies no favours at all.

It all goes to show that judging where to put your money involves taking a wide range of often conflicting information into account. Take Europe as an example. It is now our biggest trading partner and the expectation that European enlargement will bring a whole new period of prosperity has been widespread. Yet recently, the IFO index of business confidence in Germany disclosed an unexpected fall. It seems that not everyone is optimistic about the future.

Turning to the Far East, the information flowing from China is truly remarkable. Chancellor Gordon Brown was out there recently, banging the drum for what was left of the British-owned car industry but the company expected to be the saviour of MG Rover is state-owned. The free market may be gaining hold in China but it remains politically constrained and has its own share of problems that, at the very least, seem likely to deliver periods of less reliable growth.

Perhaps it is because the investment scene is so complex that some of the best-performing funds have been based upon stockpicking techniques. Nowhere has this been more successful than in the smaller company end of the market. Here, there are fewer factors to take into account and it is easier to get to grips with the management of a relatively simple business than to understand how a multi-faceted organisation might be faring in a wide variety of markets.

One investor I knew said that the best share portfolio comprised a single company. You got to know it very well, understood what drove the business and how the management behaved. Then you confined yourself to owning the shares for periods of time, using your judgement on when to sell and leave your cash on deposit. So successful was this strategy that he became a tax exile but this is not a strategy I could ever recommend to anyone who was not an investment professional.

This year promises to be particularly taxing for the domestic investor. Aside from such troublesome events as a general election, there is the fact that valuations, while not stretched, will nevertheless need support if further progress is to be made. True, the outlook appears favourable. There remains plenty of opportunity and the threats that lurk on the periphery are little changed. But it is hard to argue against keeping a broadly diversified approach to portfolio construction for the present.

Of course, broadly diversified is what a lot of our multi-national businesses are. It is often this broad diversification that makes them difficult to value. In the end, it is management that makes the difference.

Just as my single stock investor got to understand his company, so it is crucial to know who is at the top of any business, driving it forward. Remember, though, that if a hith-erto highly respected manager is found wanting, it was probably not easy to spot in advance and the consequences in big organisations can be damaging.


The resonators

Keep communicating through good and bad times and make your message reverberate.

Partied out and penniless

December has left me destitute. My piggy bank lies broken and empty, my lunchtime meal deal feels like an extravagant expense and I’m down to the Bountys in my box of Celebrations. But I won’t mourn my dearly departed pennies. Between buying gifts for loved ones (then deciding to keep them for myself) to treating […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm