There are many benefits to international investing. And the good news is that gaining exposure to companies listed on foreign stock exchanges is easier than you might think.
What are the benefits of global investing?
The UK stock market contains several thousand companies. But by looking at overseas markets, you can access an even bigger pool of stocks.
Tesla, Amazon, McDonald’s and Nintendo – all big names trading on foreign markets that you can buy and sell from the UK.
A key advantage of global investing is that you can access markets with a reputation as vibrant places for particular industry sectors. For example, the US market is known for having lots of technology companies, while Germany is associated with automotive manufacturers and industrial engineers.
By looking beyond the UK you can gain exposure to these sectors, and access the biggest range of stocks.
Another of the main benefits of international investing is exposure to economies that may be moving at a different pace to one another. For example, when everything’s thriving in Vietnam, life could be tougher in France. Having a blend of exposure could help to smooth out returns. When one part of your portfolio is lagging, another might be doing well.
What type of global investment should I choose?
There are two main ways to ways to create an international portfolio and add some overseas flavour to your ISA, SIPP or Dealing account.
The first is to buy a fund, investment trust or ETF (exchange traded fund) that invests in foreign stocks or bonds. To help you find investment products in certain parts of the world, you can use AJ Bell’s screening tools.
For example, the fund screener lets you search for funds in a variety of geographies, whether that’s anywhere in the world (look for ‘global sector’), a specific continent such as North America or Europe, or a specific country such as China or Japan.
You can do the same using the investment trust screener for investment trusts, and the ETF screener for ETFs.
Funds, investments trusts and ETFs can also provide an alternative route to markets that are difficult for UK investors to access. For example, India can be hard to invest in directly, because restrictions on foreign ownership lead to a lack of liquidity in the country’s shares.
The second way to create an international portfolio is to buy shares in a company that trades on a foreign exchange.
If you’d prefer this approach, AJ Bell offers dealing in 24 international markets including the US, Canada, France and Germany. Some markets, such as Australia, you can only trade in over the phone, but for most territories you can place an order online.
How can I invest in global companies?
As discussed above, you can invest overseas either directly by buying shares, or indirectly by buying funds.
When buying shares, remember that international markets have different opening hours. Most of the European markets are open at broadly similar times to the UK, but territories further away won’t be.
For example, the US market is open from 2.30pm to 9pm UK-time, and Japan is open from midnight to 6am UK-time.
You can typically place an order online during each market’s opening hours. However, you can only deal in Australia, New Zealand, Hong Kong, Japan and Singapore markets over the phone, between 8am and 5pm on UK business days.
What are the costs of buying and selling international shares?
In addition to standard dealing charges on buying or selling international shares, you’ll also need to pay a foreign exchange (FX) charge. This starts at 0.75% for the first £10,000 worth of shares, falling to 0.5% for the next £10,000 and then 0.25% on anything above £20,000.
Some companies will pay dividends in a foreign currency. When this happens, AJ Bell charges 0.5% of the dividend value if we need to convert it into sterling.
Do I need to fill out any special forms?
Although there can be a small bit of paperwork with international investing, it shouldn’t take you long to complete.
To buy shares in US companies in any account other than a SIPP, you need to fill out a W-8BEN form. This allows you to deal in US shares, and lowers the withholding tax for qualifying US dividends and interest from 30% to 15%. If you invest in US stocks via a SIPP, you won’t pay withholding tax on any qualifying dividends or interest you earn.
If the Canadian market interests you, an NR301 form lets you buy and sell Canadian shares from your ISA or Dealing account. As with a W-8BEN form, it also lowers the tax you pay on dividends, in this case from 25% to 15%. An NR301 form is not required for a SIPP as you’ll automatically benefit from the lower 15% withholding tax for Canadian investments held.
Important information: Remember that the value of investments can change, and you could lose money as well as make it. We don't offer advice, so it's important you understand the risks. If you're not sure, please speak to a financial adviser. Tax treatment depends on your individual circumstances and rules may change.
See which markets are available and how you can invest in international markets.
No matter how, why or where you want to invest, we're here to make investing feel good. Get started today.
Written by:
Dan Coatsworth
Dan Coatsworth is an Investment Analyst and Editor in Chief at AJ Bell. He has been with the company since December 2012 and has 19 years' experience in the industry, commenting on the markets and all things investing. He has a degree in Corporate Communications from Southampton Solent University.
Dan is heavily involved in the content published by AJ Bell, which includes providing market commentary, starring in our educational videos, writing for Shares Magazine and co-presenting our Money and Markets podcast, as well as hosting and presenting at events for customers – both in person and online.
Dan’s passion lies with educating customers all about investing and staying informed about market events. He previously worked for Teletext on the business and personal finance desks which taught him the importance of telling a story in as few words as possible. He has also contributed to Times Radio, LBC News, The Telegraph, Evening Standard, Mail on Sunday and The Week.
A fun fact Dan learned about investing early on was to not get caught up on the hype around certain stocks. He found this out himself when the first share he bought was a company trying to recover copper from a shipwreck at the bottom of the ocean… this sounded exciting but sadly didn’t make him any money! Outside of work, Dan enjoys swimming and live music.
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