One Fool explains why he doesn't keep all his nest eggs at home.
I was recently talking with some friends about investment and they were surprised when I told them that a substantial proportion of my portfolio is invested outside Britain. They presumed that because I invested in the stock market, I would do so by sticking to just the UK market.
I've been doing this for many years, having decided early on in my investing career that I would not limit myself to British-based companies and funds. My first overseas share purchase, in the mid-1980s, was the American genetic engineering company Genentech, and I've carried on ever since.
Nowadays my portfolio is globalised, albeit largely confined to companies that are listed in countries that are members of the English-speaking "Anglosphere". Doing so limits my exposure to Britain so, if the UK isn't doing as well as other countries, hopefully my portfolio will outperform.
Another benefit is that by investing overseas, I limit the effect of the anti-business undercurrent that rears its head from time to time in Britain and lies at the heart of many of our economic problems.
The big 10
My largest 10 shareholdings form roughly 45% of my portfolio. In order of market value, these are:
Some of these have been held for over a decade, while the relative newcomers are AstraZeneca and Cenovus Energy, which were bought just over a year ago. The four "British" companies don't really do all that much business in the UK; Soco International produces oil off the coast of Vietnam, while the other three are multinationals for whom the UK is but one of many markets.
The remaining 55% contains a similar mixture of foreign and British companies, and is somewhat biased towards companies with substantial overseas sales.
One of the star performers in recent times has been Yum! Brands, the owner of KFC and Pizza Hut restaurant, as it offers investors a way to invest in Chinese economic growth.
Stuffed with oil
Four of the big 10 are oil producers. About a decade ago, I invested heavily in oil after deciding that the industrialisation of the developing world would cause the demand for oil to rise at a faster rate than the supply could keep up, pushing up oil prices in the process. So far I've been proved right.
Last year's arbitrary and politically motivated budget tax raid on North Sea oil showed why I invest outside the UK. Nowadays I consider Turkmenistan, where Dragon Oil's business is based, to be a less politically risky country in which to invest in oil.
Currency risk and competitiveness
I'm fairly relaxed about currency risk, in large part because I have trouble in believing that the pound will be a strong currency in the long run. I think that currency risk is keeping too much in sterling!
Britain may be one of the few countries in the world which has retained its triple-A credit rating, but in the last decade our competitiveness has sharply declined. Despite their claims to be doing something about this, the coalition government keeps piling more red tape onto business and still lets the civil service "gold-plate" every European Union directive. That's not helping matters.
British political risk
I avoid keeping too many eggs in the UK basket because some highly influential parts of the British political establishment and the non-financial media openly despise profit-making enterprise. This attitude dates back to the Industrial Revolution, which showed that wealth could be generated without the need to own land and thus broke the landowners' stranglehold over the political system.
The aristocracy and landed gentry tried to maintain control by promoting the idea, which is still held by many people today, that "trade" isn't a proper way to make money. They found common cause in the 1920s and 1930s with the socialists and their anti-business slogans such as "profit is theft".
Eventually, this led to the 1970s when Britain had a top rate of tax of 98%, which could largely be avoided by the landowners. No wonder we were called the "sick man of Europe" back then. At least we're not alone today, as the sick man of Europe is Europe!
Investing in the New World
America's Founding Fathers rejected Britain's feudal baggage, and socialism never caught on over there, so it's no surprise that it's a much more business-friendly country. Arguably, it's so friendly that corporate interests have been able to conspire with politicians to warp the American tax system to strongly favour their interests, but that's another story!
To a lesser extent Canada has a similar "can do" attitude that also favours business. I've long felt that it's because the Canadian population is thinly spread across a huge land mass, which cultivates a certain amount of independence and self-reliance among the people.
In contrast, far too many people in Britain for my liking think that the taxpayer owes them a living. That encourages me to invest overseas.
Diversify to protect yourself
Another reason why I've globalised my portfolio is that it's rather difficult for the British state to redistribute / tax / steal (delete as you see fit) corporate assets that are held in a foreign country. Not to mention that it can't impose windfall taxes upon non-British companies.
Investors should not assume that the British government will always be relatively benign. Investing overseas helps you to reduce this risk.
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More from Tony Luckett:
> Tony owns shares in AstraZeneca, Berkshire Hathaway, Cenovus Energy, Diageo, Dragon Oil, Soco International, Suncor Energy, Unilever, Union Pacific Corporation and Yum! Brands. The Motley Fool owns shares in Unilever and AstraZeneca.
