Here’s how to make the most of investing in Apple, Amazon and major overseas players
In a globalised world, equity investors need to think big if they want to buy the world’s best companies.
“There is no UK equivalent to the likes of Amazon or Facebook. The UK’s own social networking pioneer, Friends Reunited, finally closed its web doors in February this year,” says Michelle McGrade, chief investment officer at TD Direct.
Combined with the desire to find a low-cost solution to diversify a portfolio, this can prompt British investors to cast their nets across overseas equity markets.
If you want to buy shares in the likes of HP, BMW, Novartis or Tesla, rather than investing in them indirectly through a fund, how should you do it?
Best way to access
To access overseas markets, investors can use a normal nominee account – and going through a broker is usually the easiest way to do it, because it can organise the currency exchange. Hargreaves Lansdown, the country’s biggest broker, charges a standard dealing fee of £11.95, plus 1.5 per cent additional spread on overseas trades of up to £24,999.
You can also trade through your Isa or Sipp. Using your Isa for active trading might not be a wise move, however, says McGrade. “HMRC rules dictate that all trades – and dividends – must settle in sterling, which eats away at your capital. In a Sipp, you are free to hold and settle in dollars and euros (if your broker allows this), which not only makes it easier to place trades, but also means you can keep profits in a foreign currency until you choose to convert back to sterling.”
Key considerations
The right broker
First, consider staying in the UK when it comes to your broker. “Investors need to be careful they’re dealing with a regulated, financially sound broker which offers the right services for a fair value price,” says Hargreaves’s Danny Cox.
He suggests this can be easier to achieve if you use a UK broker. “The investor protections are clear… most UK investors would be best suited going down this route.” UK-based brokers are covered by the Financial Services Compensation Scheme; if you do consider a foreign broker, check the protection schemes in place, says McGrade.
She adds that you should look for added services from your broker: can it provide live US stock price data or access to stock-picking tools, for instance?
You might also keep commissions lower by using online and mobile trading platforms, which are “typically much cheaper than traditional telephone broking costs,” says McGrade. That said, some shares are only available for trading over the phone.
A question of currency
Second, think about foreign exchange. You’ll be dealing with an overseas market price, and different brokers have different fee structures. Are you being charged every time you trade? Some brokers will offer FX trading accounts for overseas dealing, says Cox, whereas others convert the currency at the time of each deal. Hargreaves, for example, bases its exchange rate on the prevailing interbank exchange rate, to which an additional spread of up to 1.5 per cent is added.
Dividends
Third, bear in mind that there is an FX risk when it comes to dividend payments – because they’ll be paid in a different currency, so will need to be converted. If you are using a sterling account to hold stocks, dividends will be converted at the commission rate. A dollar account won’t charge for dividend conversion (from US stocks). Another tip is to complete a W-8BEN form. This will enable UK residents to pay reduced rates of tax on income from US and Canadian shares, explains Cox.
What to buy
Mark Pullen of Canaccord Genuity Wealth suggests focusing on companies listed on major Western stock exchanges but which have globally diverse earnings. “The advantage of this approach is that one can invest in stocks that are listed on highly regulated exchanges, with adequate levels of corporate governance and in easily tradeable currencies such as the US dollar or the euro.”
Stocks that fit this approach, he says, include BMW, Henkel (the firm that invented modern-day laundry detergent) and SAP, the software company. “In France, you can invest in Christian Dior, one of the world’s largest luxury groups courtesy of its 41 per cent stake in LVMH.” Global brewing giant Anheuser-Busch InBev, which owns Budweiser, Corona and Stella, is quoted in Belgium. In Spain, an investor can buy Amadeus IT, a leading transaction processor for the global travel and tourism industry.
In the US, Canaccord highlights: Johnson & Johnson, Proctor & Gamble, International Flavors and Fragrance – which makes flavours and fragrances used by food, drinks, personal care and household products industries across the world – and the “ubiquitous tech giant” Apple.
This article appears in the October edition of Money magazine.