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Investment View

I was mightily impressed with the turnout at the Association of Investment Trust Companies&#39 Private Investors Forum in Leeds recently. We were deep in the middle of the worst fuel crisis I can recall since the three-day week in 1974.

The range of protests that worked their way around Europe did little for our stockmarket and even less for sterling and the euro. US investors were doubtless wondering what all the fuss was about but then their energy costs are modest compared with ours. With predictions of the crisis costing the UK £250m a day, and the likelihood of literally thousands of small businesses folding as a consequence, the week did not feel comfortable. I was glad to escape to sunnier climes.

The message I was taking to the good burghers of Leeds was that private investors need to think more internationally these days. In many ways, companies are already doing it for them. Anyone investing in Glaxo, Vodafone or BP Amoco is buying into global businesses, even if their primary listing is in the UK. Already, there is a plethora of funds that reflect global themes, while indices are being constructed to track industries or country groups rather than domestic stockmarkets. It would seem the next step – the cross-border amalgamation of exchanges – is but a whisker away. But as events of recent weeks have proved, nothing is further from the truth.

The Holy Grail for securities trading is simultaneous – or near simultaneous – execution, settlement and delivery. Nobody really expects this to be possible for a few years but the next best thing – T + 1 or settling a transaction the day after execution – is now firmly in people&#39s sights. The reason for embracing speedier settlement and delivery processes is not just about the efficient use of capital, it should also lower the incidence of fraud.

Markets that succeed in developing systems that allow customers to approach these standards should, in theory, clean up. But there are other factors to take into account, such as the regulatory environment, taxation and other associated costs that may determine whether a company lists in country A or country B. As business becomes more global, investment has necessarily developed a more international theme, but the actual trading of securities continues to be a largely domestic affair. It remains to be seen whether any of the initiatives under way will actually fly but I feel certain considerable change is set to take place.

In the meantime, what should the poor private investor do when, according to Apcims, 60 per cent of a growth portfolio is likely to be invested in UK equities while a mere 9 per cent of the value of world stockmarkets is represented by the London Stock Exchange. Ignoring the US has proved a costly mistake for many fund managers.

It was interesting to look at international general investment trusts, some of which were represented in Leeds. Even their approach is not uniform. I singled out three to put forward as examples to my audience and the proportion devoted to the UK varied between 35 and 70 per cent. My experience suggests even a 30 per cent overseascommitment in a British private investor&#39s portfolio willprobably be quite high.

Thinking more internationally should be a high priority these days. Even the yield premium in the UK has dwindled to the point where there is less to lose by putting your money abroad. If we can deal with the cost element and move to common standards between markets, I can see private investor portfolios looking very different a few years hence.


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