On a visit to Florida, I was reminded of the term “snow birds” – older citizens of the northern half of the US who flock south for the winter deciding, based on past experience, that there is a fair chance the weather will be warmer. The majority of their peers endure the cold winter, sure in the knowledge that warmer days lie ahead at home, but probably slightly envious of their mobile neighbours.
For many UK investors, their portfolios will tend to have a UK bias, with UK equities and bonds making up a significant proportion of their portfolio. And why not – after all, we spend Sterling and have a greater understanding of how our native financial markets work. There is a certain comfort for some, knowing that we are invested at home, rather than in foreign markets. And long term investors have been through a few “winters”, persevering in the knowledge that better days lie ahead.
However, over the last few decades, the constituents of the FTSE 100 index in particular have become less UK focussed. The UK has long been a sensible place to do business but increasingly has become a sensible place to base a business. Over 70% of earnings in the UK’s top companies are now generated overseas, so when investing in our home market we are already investing internationally.
Which is probably just as well – the UK economy could lag behind the rest of the world even in a continuing period of synchronised global growth, mainly because of lower productivity and uncertainty over Brexit. Worries abound on the level of investment large companies will make in the UK, and whether the UK will continue to be the base of choice for them.
What if a change of government in the UK leads to an increase in corporation tax? This is added to worries about the lack of UK trade agreements and workers being less able to move to the UK.
And while we are on the subject of Brexit, UK investors benefitted from significant gains in the summer of 2016 because Sterling weakened making those international earnings more valuable – what happens if Sterling jumps by 10 – 15% if a “good” Brexit deal is signed?
Although the sun appears to be shining more brightly elsewhere, as ever there are numerous investment questions, home and abroad. Will the Trump era continue to deliver robust economic momentum and lift the US stock market further? Will global inflation lead to interest rate rises around the world? Will Abe-enomics finally deliver sustained growth in Japan? Will emerging markets continue to emerge? Will Europe continue to flourish?
I guess it comes down to whether you want to be a snow bird chasing the sun, or whether you have the patience as an investor to stay at home come what may. As ever, successful investing remains a matter of careful research, analysis and considered opinion.
Join as at The Scotsman’s Home or overseas 2018 conference on March 20th where our Chief Investment Officer Caspar Rock will share his 2018 outlook on global markets.
By Bob Hair, Wealth Planning Director and Head of Edinburgh Office, Cazenove Capital Management