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Monday, October 18, 2021

Why ‘buy British’ is the worst investment advice ever

British savers have been urged to expand their horizons and buy overseas stocks as their penchant for domestic companies has held back returns.

“Home bias” among Britons has been waning but the average investor still holds more than a quarter of their pension or Isa in UK companies. This is despite the global market’s total return of 78pc over the past five years, compared with just 22pc from London’s blue-chip FTSE 100 index.

The average investor’s exposure to the UK has almost halved over the past decade, from 42pc of their portfolio in 2010 to 26pc in 2020, according to the Investment Association, a trade body for the fund industry. 

However, Lothar Mentel of the asset manager Tatton said a quarter share remained a size­able portion in what had been a poorly performing market. He added: “The UK stock market makes up around 4pc of the global one, so you could say the average investor’s weighting is 22 percentage points too high.”

Investors who pick their own stocks are most at risk of missing out, as home bias here is particularly prominent. Customers of Britain’s biggest stockbrokers, Hargreaves Lansdown, Interactive Investor and AJ Bell, hold around 80pc of their share picks in the UK.

Rob Morgan of Charles Stanley, another broker, said the supersized weighting was a legacy of privatisation in the 1980s and 1990s, when the Government encouraged DIY investors to buy shares in former state stalwarts.

“British savers have often held the likes of BT and BP because they were familiar with the names from that period,” he said.

Mr Mentel said investing in the domestic market was a “comfort blanket”. “We think we understand businesses in our own country more and there is an emotional element that is hard to eliminate,” he said.

British investors have historically been reluctant to invest in overseas shares because of high fees. Brokers charge varying rates to exchange pounds into dollars, for example. Free­trade and IG Group are the cheapest options: they charge foreign exchange commission rates of 0.45pc and 0.5pc respectively.

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