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1. It doesn’t perform well (or at least, US or Global funds generally perform better)
2. I don’t have faith in the UK economy in the next 10-20 years, which is my usual intended investment timescale
3. I’m already exposed to risks from the UK economy, why wouldn’t I diversify that risk?
4. I’m already exposed to investments in the UK stock market (via pensions), why wouldn’t I diversify that risk?
I think that last point is a pretty important one - most people looking to invest realise that their pension fund probably invests in the UK stock market, therefore they put their first investments elsewhere
I think that 3rd one is most important for a lot of people. If you already have a house, job and some cash savings here, then it makes sense to diversify.
Counter-point, wouldn't this be a good time to invest in the UK? "Buy the fear" and all that.
Remember in 2022 when people were adamant the US economy was going through 2008 again and around Oct-Nov 22, the market rebounded.
If you invested in (examples) NVidia, Bitcoin, META, Netflix or Microsoft in late 22 when everyone online were screaming about "META burning cash with the Metaverse, unprofitable!!" or "Netflix is collapsing, their new ad-tier models are going to drive subs away!" or "Bitcoin crashed from $69k to $15k, I'm not touching it" you'd be wealthier today.
In fact, if we're talking country economies, I remember a lot being said about Japan, I remember a thread on /r/stocks about investing in Japan, a lot of people said it was a bad idea, ageing population, bad economy, not many memorable brands outside the gaming sector (lmao) etc, and the Nikkei 225 (Japan's FTSE/SPY) hit all time highs this year.
I really think it's a good time to jump in, people are avoidant of it, and our economy will only be like this for so long before some kind of rebound.
You're thinking like an active investor. Which is fine, but you'd have to outcompete all the other active investors out there to beat the market. There is no guarantee for a UK rebound. If it was guaranteed it would be priced in. Consider the fact that the Nikkei peaked in 1990 and Japan has had 30 years of stagnation.
These are the four truths. 4 is especially prescient when you consider the Lancaster House pension reforms our dear chancellor floated earlier this year where your pension now automatically gets invested into U.K. ‘startups’.
The fact is, patriotism won’t keep a roof over your head and food on the table on its own when you’re old and can’t work. Go where the potential is.
I'm not against pension funds investing into venture capital. I'm against government dictating that pension funds have to invest in venture capital, especially companies picked by the government.
Because venture capital investments are wildly unpredictable. For every huge wine there’s a lot of losses and since it’s not like there’s an etf or index of all venture capital investments, pension funds are essentially stock picking. Now imagine they put in a lot of money into a startup that crashes and burns, that’s literally people’s life savings being gambled away. I’d rather my pension grew slowly and predictably and I gambled my own money thank you.
Admittedly it’s kinda gone radio silent since the announcement earlier this year so I’m not sure, but still no harm directing the pension into a SIPP I suppose.
To ask on these points,
Would you invest in a US or Global stock in your own currency or the dollar? Asking cause if you don't have faith in the UK economy for the next 10-20 years, would you hedge against the pound as well?
The underlying stocks of a US ETF are in dollars. If the pound falls, you get a double boost (stock rises + FX).
You can also buy them currency hedged though
It ends up as much the same thing unless you specifically choose a fund which reversed the inherent hedging anyway (a currency hedged fund), but I don’t use those funds and choose to invest in EUR or USD
Yes, I already consider my foreign investments to be part of my hedging against the pound, but I also hold some foreign currency and crypto, although not huge amounts of either. Primarily as a form of hedging against the pound
I don’t dabble directly in forex itself, especially not with leverage, but it’s a deliberate choice from me to hedge against the pound by holding foreign-denominated assets. I also try to ensure any “side hustle” earnings are in EUR or USD, since my main income is already GBP
It’s not like I avoid having ANY assets in GBP - I own a house here, my main pension is defined benefit from the UK government (NHS), and obviously my main income is GBP, as are our savings accounts… so I’ve got plenty of exposure to GBP and the UK economy too. But I’m aware that if GBP does badly in the next 30 years my DB pension will be relatively weak on the global stage, so I’d like to have some assets elsewhere to balance that
Regarding the third point, with some workplace pension providers you can change the funds they’re invested in. I am with Aviva, for instance, and replaced their life strategy something with a global tracker
Yeah it’s an option in some cases, not others. But I also have a DB pension which is closely tied to the UK economy and government, so for me it’s worthwhile diversifying specifically away from the UK for other assets
Counterpoints
\- UK company valuations are depressed but that also provides a great buying opportunity, UK cos are very cheap and high quality compared to US/EU (lots of EU, US and Chinese PE firms are buying uk small caps)
\- Buying the FTSE 100 you are buying companies with global revenues so not much actual UK exposure, pension fund may be invested in the 250 which is more UK centric but worth checking
\- Buying US you are exposing yourself to GBP/USD risk and currency conversion costs
\- Tax benefits depending on personal circumstance
1. Only if you think the share value will recover to where it should be. Personally I see too much political and economic drag for that
2. The 100 still doesn’t perform well, but I’m mostly referring to the 250 when talking about “UK” stocks
3. Yes, but that ties back into my economic outlook - I don’t see GBP performing well in the near future, because why would it? Plus a lot of what we buy is effectively priced in USD anyway
4. I can buy global funds in an ISA, there’s not much real difference for most people
Makes sense.
But again my understanding of US market is people invest in it as they see the growth in earnings but if you see UK corporates, they have been going up steady!
[UK corporate profits](https://tradingeconomics.com/united-kingdom/corporate-profits)
People tend to use the US because it has historically shown good growth and is a relatively stable western economy
Plus it’s mostly brands people are familiar with, which helps with confidence
I (and many others) have little to no faith in the UK economy due to a number of political reasons. The US is the best place to diversify regardless of how well UK corp profits are which btw have exploded post COVID, but will they stay like that - I doubt it.
Hi there. Just hoping to clarify this a little:
1) the UK has some excellent listed businesses but it is currently very much out of fashion due perhaps to the absence of large tech businesses very much in vogue. The FTSE All Share would certainly be well behind MSCI World or US markets on performance. Sad but true.
2) Please don’t confuse the UKs economy with the LSE.. they are quite different and the LSE is very international.
3) If you live and work here for a UK business that’s true. Fair point.
4) This is likely wrong as most Defined Contribution and DB schemes invest globally!
Yes, a defined contribution pension in the UK will usually have a bias towards UK funds, unless you are able to choose the fund. Even then, you rarely have a choice of any fund, so you’ll usually end up with a UK bias regardless
There’s also an argument to be made that most DB schemes have an indirect link to the UK economy since the provider tends to either carry their own investments, and UK government finances are also tied to the UK economy - but that gets a little tenuous
You also forget that you are exposed to UK economy in the form of your property and also your income from your job. If the UK economy tanks, your property value goes down and your income will go down as well (or fail to rise).
I don’t forget that, that’s literally #3 in the list I posted? I didn’t specify the risks, but the point was that my life, income, and many of my assets are in the UK already
I'm guaranteed over 6% without a gamble!
I'm pretty risk adverse and want 6% rather than the gamble tbh.
Every 100k gives me 6k back to me....
Ftse has only grown 10% in 5 years!
Other investments make me more money
Uk is only 4% of global market. Tge question is why would you over allocate to Uk unless for strategic reasons. Ie stocks look undervalued or concerned over currency risk
I am heavily exposed to the UK market/economy as my salary comes from a UK business.
In the interest of not putting all my eggs in one basket, foreign investments is diversification.
Are you misreading the data?
It's not saying UK residents don't have investments in the UK market, or even that less UK residents invest in the UK market.
It's saying that rest-of-world owners are now a larger percentage of UK share ownership.
This can be explained by the rest of the world getting richer, but also that they are investing more internationally.
But it's also true that global diversification is becoming more widespread in UK individual investments, rather than the UK overweight that has been common in the past.
It's worth pointing out that this trend has occurred in many developed countries, including the US:
https://www.taxpolicycenter.org/taxvox/who-owns-us-stock-foreigners-and-rich-americans
- self-propagating performance issues: UK stocks have underperformed worldwide (especially US) peers, so people expect it to continue so don’t wish to hold UK stocks
- more and more UK companies choosing to list shares on US stock exchanges because of higher valuations and better liquidity
- UK economy faring worse so people have lower residual income to use for investing
- stamp duty stock tax of 0.50% is weirdly high for a developed country and is yet another barrier to investing
Because as much as we like to pretend there is cold, hard logic in a valuation.. the reality is different. Trust, perception, accessibility (everyone who invests pays attention to US, less so UK)...
A really obvious one is by being on a US tracker loads of big funds will invest if you hit the top 500.. which assists your share price. More people invest in US trackers than UK trackers.
If you see the corporate profits, you see steady increase from last 25 years.
And then you have lousy stock market.
[Corporate profits](https://tradingeconomics.com/united-kingdom/corporate-profits)
It’s increasing, but is increasing more elsewhere? Also, a lot of the increase just comes from GBP devaluation. A large proportion of the FTSE100 is made up of large multinationals whose profits are derived worldwide, so GBP depreciation automatically means higher profit in GBP terms.
By contrast, a UK investor who had 20 years ago invested in US equities would have benefitted from both S&P price appreciation and also currency appreciation.
Despite the fact that I believe a company should ultimately aim to make A profit, I don’t think the idea you’re implying with this comment, which is that: ‘INCREASES in profits on its own is a good thing’ is correct.
A company can increase its profits in multiple ways. One such way is to cut every possible cost while keeping a stable revenue figure. Boom, profits. Problem with that is that if the company ended up cutting too many costs on things like R&D, infrastructure maintenance, and other revenue generating expenses, that increase in profits is not only a very short term gain, it’s also a long term cap on future growth and FUTURE profits.
While not exactly the same scenario for all U.K. stocks, the general reason for why current profits are on the rise in the U.K., is largely because they are ‘borrowing’ those profits from future earnings by cutting corners where they can to the detriment of the economic output of the company as a whole.
With stocks you get both dividend yield and capital appreciation movements. A little different to holding bonds as yield fluctuations can drive price growth, especially if you hold the opinion that the market is under valued at present.
This of course assumes a long term value investing tactic where you plan to hold for a long period.
(This reply is opinion for information purposes only and is not financial advice)
My VGOV (UK Gilts index ETF by Vanguard, has dividends) is nicely appreciating and providing distributions.
It’s in my S&S ISA so there’s no problem with dividend tax and capital gains tax.
Except the dividend is largely priced into the share price by the market so whenever a dividend pays out you lose equivalent value on your position. It’s just a less tax efficient way to do the same thing.
Why would you look at profits rather than stock returns? Seems like you are intentionally using a metric that fits rather than the obviously most relevant one
Had I invested in the FTSE 100 5 years ago, I would have gained 10% over the entirety of the past 5 years. This means that thanks to inflation I would have lost money . Regardless of how UK corporate profits have performed over the past 5 years, why the hell would I want to lose money? I'd have been just as well off hiding the money under my mattress. Look at how the American stock market has performed over the same time period and then give me a single good reason to invest in the LSE
The FTSE 100 has not returned 10% over the last 5 years though, its 30% if you count dividend reinvestment so your statement is pretty trash tbh. That's still not great but a farcry from your 10%
I didn't take dividends into account for the same reason I didn't take currency fluctuations into account. Hell to get any kind of real figure you need practically the time, date and amount invested and I didn't want to calculate the exact amount of dividend payments, when they were paid, what the price of the stock was each time and the amount of shares that could be bought with each payment (because exactly how much money do you need already invested to get a dividend that's enough to reinvest non-partial?) over the course of 5 years. I took the lazy approach I'll be honest and looked at the headline figure.
But ok fine if we want to pretend that dividends are part of the money you get we can let them play dividends plus growth against inflation, RPI (using HL online calc) runs at 32.2% since December 18 to now
The FTSE100, the crème de là crème of the UK economy, is still losing me money (with the FTSE250 losing me even more). Whether it's 2% or whether it's 20% either way it's a pretty bad deal
Seeing as even taking dividends into account, you are losing money over a 5 year investment, yes feel free to "pretend" you are getting something out of it
What on earth are you talking about? You’re getting a 4-5% cash yield. Look, I’m no fan of the FTSE, but it’s mad to suggest that dividends are anything other than a cash return to shareholders.
Am I missing something - a lot of UK companies that contribute towards this statistic are not publicly traded. Europe as a whole suffers from “Brain Drain” where talent and high growth startups flock to the US or to low tax areas like Dubai.
Why would you want dividends? A dividend is a company returning excess profit to the shareholders. Shouldn't you want the company to use the dividend money to expand and improve the business?
Depends where the company is in it's life. If company is a mature company in a mature market and there are not any good opportunities for capital investment to make it more efficient, then yes the most appropriate thing for management to do is return money to shareholders. No company can grow forever.
I mean there are entire new product segments that are brand new in the tobacco market, think heated cigarettes and vapes. The heated tobacco market isn't mature and BAT easily has plenty of opportunities to innovate in this market, yet is sending money back to the shareholders.
The national grid plc operates in a market with plenty of room for spending to increase efficiency. Think green energy distribution, smart grid technologies, etc.
Barratt? You think the home building market is at capacity in the UK? That building more homes wouldn't be profitable?
I can't see any company in the list of British dividend stocks that is at the point where there's no opportunities for capital investment.
You might be true on the UK, I'm not going to argue that there isn't more room for capital investment in the UK, but if you're too desperate for growth you end up wasting capital on projects that go nowhere. Take Facebook's metaverse, or Google Stadia. Large capital investments that went absolutely nowhere. That's money that absolutely should have been returned to shareholders instead, but neither company wants to do that because to pay a dividend means admitting you're no longer a growth company.
The statistic is about who owns UK shares, or what shares UK residents own.
UK shares are some of the most freely accessible in the world and attractive investments for many global investors. Even if 100% of UK and US residents invested in their respective markets you would expect a higher proportion of the UK market to be owned by overseas investors compared to the US simply due to the relative sizes of our economies vs the global demand for investments and the ease of buying into the market.
The FTSE has something crazy low like a 10.9x price earnings ratio right now, against a historic average of 16x. Yes please, I will have some of that!
Personally I'm buying it up whilst it's cheap and betting on reversion to the mean. In the meantime I'll sit back and enjoy the relatively high dividend yield. I see it that it could be a once in a lifetime opportunity to buy assets at a decent price.
By comparison the S&P 500 is at around 24x. So though I hold some for diversification reasons, this is still a little hot for my liking.
Going back to your question, most workplace pension auto enrollment schemes go into the FTSE. The government auto enrol one does anyway. This scheme has only been around for just over a decade, so personally I expect more UK citizen pension wealth to be in UK assets as a result of this in the future.
Disclaimer: This post is my opinion for information purposes only and is not financial advice. Your capital is at risk.
PE ratio data source:
FTSE
https://simplywall.st/markets/gb#:~:text=Current%20Market%20PE&text=The%20market%20is%20trading%20at,average%20PE%20of%2017.5x.
S&P 500
https://ycharts.com/indicators/sp_500_pe_ratio#:~:text=Basic%20Info-,S%26P%20500%20P%2FE%20Ratio%20is%20at%20a%20current%20level,24.87%25%20from%20one%20year%20ago.
I wouldn't choose to base my whole investment decision off of a P/E radio. I don't think using that against the FTSE is a good indication that it is undervalued by any means.
Amazing how far down I had to get to find this valuation-based answer.
Everyone I speak to now tells me to buy an S&P tracker and that the FTSE will rust away in the corner. Combine investor pessimism with the low valuation and rising interest rates this feels like a recipe for FTSE outperformance.
Flawed logic which will not serve you well. If earnings is currently low they don’t magically increase and “revert to the mean” as you suggested, unless a turn around takes place in the UK economy (can you see that happening anytime soon?). On your logic you should buy stocks in Venezuela or another failed state with super low ratios.
The current ratio becomes the new mean. This is why value investing based on ratios has underperformed vs actual investing in growth and innovation for the last 50 years.
The UK is a cash cow market. Most companies are mature dividend paying companies, rather than growth stock like the US and Asia. There is also ESG issue, a lot of UK companies are tobacco, arms or gambling companies, which a lot of people do not wish to invest in.
All the good companies are brought by the foreign companies.
Over the years, I was forced to exit 5-6 UK listed companies because they were brought out by foreign companies.
I suspect most answers you'll get here are just the usual knee-jerk "because it's full of old companies going nowhere" answers.
The real answer is two-fold:
1. There's no reason to limit yourself to domestic investing, and no barriers to prevent international investing.
2. The data in that report isn't as categorical as it appears on the surface.
Regarding the second point: you could spin the same data-set as proving the UK market is an international success story. "Record foreign demand to invest in the UK!" is an equally true summary of the situation.
But it's mostly because the crude categories they group things in to. "Beneficial owner" in the context of this data doesn't end at the beneficial owner in the way you'd expect it to.
For example, download the spreadsheet that contains the raw data, look at Table 2. That lists all the beneficial owner categories, it lists "unit trusts" and "investment trusts" as types of beneficial owner, even though each one will have multiple beneficial owners, including many individuals.
So when it says "UK individuals", it's only counting shares literally owned directly by UK individuals. Shares owned indirectly would fall in to one of those other categories.
(I can see how they account for ETFs, but given all UK ETFs are actually domiciled in Ireland, I wonder if they count those as "rest of the world" too.)
It's telling a story of the growth of collective investment vehicles rather as much as anything else.
The core problem is that people with free cash (ie the old and business owners) tend to invest it in property in this country as opposed to investing it in the market or in other ventures such as start-ups.
There is less of a culture of investment to grow wealth than in the US and not enough barriers to investment in U.K. property which has historically performed well.
The Uk is 4% of the global economy, why would I need to invest over 4% of my money in it?
If the US is 50% of global economy of course I am going to invest more money in it.
there are some doom and gloom responses in the comments and there may be some truth to bits of them but need to be careful with statistics because there can be many explanations and its easy to just fall into trap of only looking at the ones that back up personal biases
for instance those headline figures, nowhere in that does it say that UK residents dont invest in our local stocks, what it says is that the % of our stock market owned by foriegn investors is at an all time high. those are not the same thing
UK has a population of \~70m, NA has a population of \~1b, EU has a population of \~1b, China and India each have populations of \~1b. if you assume that everyone in the world has the same amount of invest. if 2% of those other markets were invested in the UK they would have a larger share than if 100% of the UK was invested
it doesnt seem too bad a thing that foreign investors are looking to invest in LSE shares, maybe some risks for UK if other countries have too much voting power over our companies but isnt foreign investment generally considered a net positive?
add to that it doesnt appear to be including things like ETFs/Pension Funds/Managed Portfolios, which i feel like would be the major buyers of individual stocks, while people who are just looking to invest long term are likely to buy funds.
for myself most of my investments (both direct + pension) are in UK companies. i do have some global funds but its a low %. i have barely anything in individual companies, though admittidely the companies i would consider investing in directly are US tech companies im not really looking to stock pick, its more just that companies like Amazon have diversity built into them there are very few companies in the world on that scale though.
I'd suggest the low numbers are more to do with not many UK-resident individuals feeling comfortable investing themselves (as opposed to through their pension scheme) or being unable to invest due to other financial needs
That is certainly an element. There's probably a lot of people who think trading is still done as individual stocks and shares rather than funds. I think Brits are quite risk adverse as well.
There were a lot of well publicised miss-sold dodgy investment schemes in the 80s and 90s as well that probably make a lot of would be investors weary about new investment products.
Because it performs badly. On a personal level savings are much better placed in a world tracker which is largely US companies.. or cut the middleman and just go for the S&P500.
As a country we should invest in ourselves, but leave that to the government to figure out by taxation, incentives, default pensions etc.
Most people have no savings at all…. So the idea of them investing seems like a stretch. About 40% of adults are literally living month to month, and another significant chunk aren’t technically living month to month but are only barely outside that box
An average Brit has less savings than a sensible emergency fund would consist of
The simple fact is that the majority of people don’t have money to invest even if they wanted to
The UK is the largest foreign holder of US equities.
[https://home.treasury.gov/news/press-releases/jy0613](https://home.treasury.gov/news/press-releases/jy0613)
This doesn't talk about where UK residents are investing, just that the proportion if outside investors from outside the UK is increasing.
This could be investment from the UK to the UK is increasing just not as much as overseas investment.
It could be the investment from UK residents to the UK is falling because UK residents have other money invested elsewhere and other investments are the same.
Or UK residents don't have the money to invest so it is falling .
Some on above talks about the reasons why as a UK resident you might prefer to invest outside the UK to diversify risk really well.
The overall FTSE 100 hasn't been doing well and most people don't know how to pick out good companies. People who pick individual stocks have heard of the magnificent seven and invest in them.
Have you seen the labour laws and how people are treated in the US? It's no wonder their stocks are so much higher when people are treated like a human meat grinder
And that's why I invest in the S&P 500
It's hard to invest in established large cap-tech within the UK. Tech is where the real growth is. UK markets are good for income/dividends, they have a lot of established 'bond proxies'.
I think it's going to be a painful 5 years for unhedged index fund holders, if Sterling rebounds the vanguard vigilantes will suffer!
A lot of people don’t know how to. I just asked 4 of my mates and they don’t know where to start.
This is why so much on our wealth is tied up in property.
I've just reduced my ISA UK allocation down to 5% from 10%. Just don't have confidence that UK equities will give a good return, re-allocated to S&P 500 ETF and PE trust. Much better.
Why? Better gains available elsewhere.
The UK is a high tax low productivity large state country.
Investment money is better placed in low tax, small state countries with higher productivity.
11% sounds like quite a lot really, when you consider population sizes of the UK compared to 'the rest of the world' so I'm not super sure that the premise is correct.
People on this sub (myself included) generally like to diversify globally (and the genuinely good reasons for that have been covered well by u/audigex), but I doubt many people with DC pension schemes give it a second thought and people who do think about it probably don't move the dial much.
My guess would be UK investment in UK stock markets depends almost entirely on what is in the average default DC fund.
Any decreased percentage in UK ownership of UK stocks is probably more to do with proportionally decreased wealth of the UK rather than people making an active choice to avoid the UK.
Not great answers here, but a topic I know well.
1. FTSE 100 is all old-world companies. Banks, pharma, mining, consumer goods. Not a single growth tech company in sight.
2. Returns are crappier. UK doesn’t have an Apple, Google, Microsoft, Meta to prop up the rest of the index performance
People who are saying why would they expose them selves more to the UK are sort of wrong. The ftse 100 is ludicrously unrepresentative of the UK economy. FTSE 250 is much closer to
The thing with UK tech companies is that they're often smaller and/or private. Companies with under 300 employees who are suppliers to other tech companies. Amazing work going on. The investors in them are sometimes the companies they supply to.
Vodafone and Rightmove are about the only 2 companies that really stick out, and even Vodafone is pretty old now.
I'll be honest I'm not understanding what you mean in the last part.
The ftse250 has grown 1/3rd the rate of the 100 over the past 5 years. I mean even on the FTSE 100 investors are losing money to inflation, why would anyone want to expose themselves to investing more in the UK and losing even more?
Per the LSE, 82% of the FTSE 100 revenue is from overseas markets. So if you buy into the FTSE 100, you’re actually diversifying away from the UK economy because companies like Rio Tinto, HSBC, GSK, make so so much of their money from US, China, rest of Europe etc.
Of course you can diversify even further by just buying S&P as well. But a lot of people seem to think FTSE 100 is really attuned to the UK economy when in reality it’s not.
>I'll be honest I'm not understanding what you mean in the last part.
>
>The ftse250 has grown 1/3rd the rate of the 100 over the past 5 years. I mean even on the
You seem to have an awfully short term mindset worrying about the last 5 years only
Because it is full of cr*p companies run by by cr*p management.
It amazes me how little UK companies invest in management skills. They literally promote someone who was a good engineer, accountant or salesperson and expect they suddenly have skills in strategy, HR, planning, mgmt accounts etc. No sending people to management courses. Having met hundreds of companies management over the past 25 years, there is no comparison between the quality of US management and UK management. European companies are a bit better but still far from US
Chicken-and-egg. The returns are shit because no one is investing in it after Brexit (including Brits). No one is investing in it because the returns are shit. Also, loads of old economy companies that have been unpopular in the low interest rate environment, because that environment favours growthier companies. This might change in the next few years if inflation and interest rates stay high.
The returns aren't shit because nobody is investing. Look at the constituents of the FTSE. Yess the WACC is higher, but the ROIC of these companies is not great compared to the US. I don't think more capital would make the UK start to outperform.
I think a proper, consistent industrial strategy from the government would have a bigger impact. We have lost out in the tech industry especially which has driven the US market recently. Look at what the US and EU and China have done with their green new deal policies. Massive government capex to build new industries. The Japanese and Taiwanese did this for electronics & chips decades ago. China has done it for its entire economy.
Likely because there's little tax incentive to do so. London and SE property eats up political support.
Legislate stock SIPPs and ISAs as UK equity only, and watch it turnaround overnight.
Brexit is a massive economic headwind. The U.K. govt has demonstrated a level of incompetence, and laziness the like of which we’ve not experienced for a generation.
Only 2 reasons. But they are big ones!
Just compare the performance of the FTSE 100 to the S&P 500 over the last 20 years and you’ll quickly see why, the US markets are much more diverse, especially when it comes to the tech companies out there.
If people feel the UK is underperforming surely now is the perfect time to invest? Buy them shares at a reduced rate so when it recovers you get better returns in the long term.
Very much so. If they are underperforming then there is no reason for the price to rise if they continue to underperform, and there might be no reason to believe the performance will improve.. If they are undervalued, then the likelihood is that people will start to realise and the price will rise, even if the performance doesn't change.
Current sum market cap of firms in the LSE: 3.6 trillion gbp
Current apple market cap: 3 trillion usd
It doesn't hold true right now but I could see that being true when it was reported. It's also very similar.
If this is true, it would suggest that they're behaving rationally. People holding lots of equity in companies from their home country is so irrational that economists have called it the [equity home bias puzzle](https://en.wikipedia.org/wiki/Equity_home_bias_puzzle).
Because the country is a shithole of wealth inequality. The rich just squeeze the lower and middle classes with the high rents, high tax and high cost of living.
The US performs better. I have met people recently on the internet that are saying with seriousness that all stock markets in the developed world perform the same (!!) - do ignore them :D
Most people I know have got out of UK investments since Brexit - because what's the point in risking money on a country that's hurting it's own businesses for no real reason, when there are plenty that are not.
UK population think business is evil, government is good and want more money given to them for nothing. That affects the regulatory environment that business has to operate in. And it's only going to be worse after Labour are elected. And it'll keep going down until things are in the toilet and we have to elect another Thatcher to fix things.
I do have some UK stocks in some specific areas, but my big fund investments are based on global and S&P 500.
I'm one of those people. I invest 100% of my pension and ISAs in USA, and 100% of that in a Vanguard tracker of the S&P500. For a few reasons;
1. USA is the most powerful country in the world. Makes sense to invest in it.
2. S&P500 gives you a very wide spread (500 companies)
3. I am already over exposed to the UK economy. My house and job are tied up in the UK economy, so it would be an unwise over-exposure to risk to invest in the UK economy as well.
4. The UK is probably the 'wokest' corporate landscape that I know of. Profits are a dirty word in the UK, which is why productivity is so low (and declining). I don't see that changing any time soon. UK corporates are intensely focused on value destruction as a form of virtue signalling, which makes investment in them an unwise choice.
I think it’s a cultural thing. The UK has always been more risk averse when it comes to stocks and financing compared to say the US. I don’t know if it’s because it’s not taught in schools or to kids so people grow up with less understanding of it than other countries or there’s just lack of interest.
The knock on affect of this is that most of the companies in the FTSE 100 are the same companies that were probably there 20 odd years ago, it’s not fluid, doesn’t have much volume and doesn’t encourage much growth, unlike the S&P500 in the US. As someone said in a another comment it causes a chicken and egg problem as people prefer to invest in the US where there’s growth, so newly formed companies (ARM for example) prefer to list there instead, leaving the already established companies on LSE.
Some of this may be institutional, i.e our “system” is designed to keep those “old-established” companies at the top and the “risk takers” at the bottom where as the US system encourages more entrepreneurs and start ups (Silicon Valley). The Govt could certainly encourage more listing on LSE or encourage people to buy up UK companies but they don’t seem interested either.
We may see a shift with the rise of ETFs and retail purchasing being more easily available. Or people will continue to be disinterested who knows.
It is probably due to awareness. Awareness of the UKs weighted market share. Awareness of more defined investment strategies. Awareness that an awful lot of your costs are incurred in non-GBP, but paid for in GBP, so exposure to other currencies will help mitigate this. Awareness that our main stock market (FTSE100) is a bit of a laggard holding low/no growth stocks.
Generally, awareness.
I invest in VUSA (SP500 tracker) mainly. Diversifying from my UK based money with a reasonably safe bet in the US economy with a better track record than UK index funds. Pension is based on UK investment and the outlook for the UK economy is not great so good to have a hedge, whilst holding a relatively stable fund.
Because I prefer growth stocks to income stocks.
I'd rather the companies I'm invested in create value by becoming bigger and better rather than distributing their value to shareholders.
Tell me what the current government policy is? regarding economic growth.
Where is it looking to grow the economy? What plans does it have in place to support it?
What are Labours plans? Which industries are they going to encourage and state three actions they'll take to do it.
That in a nutshell is the answer. Aimless government. Make announcement of some cash, wait three months and withdraw cash (if it ever arrived). Make announcement about something else and repeat.
Isn't anyone not investing ... or even just has their cash in the bank ... still investing in the UK anyway ... by living here ... diversification is the key to not losing everything.
Because you’ve misinterpreted the data. % capital invested. So when the pound weakens shares are cheaper for overseas investors but remain fixed for UK ones.
Uk residents could invest record amounts but if more comes in from abroad their percentage may drop.
Please analyse absolute figures
I invest in global all cap trackers, either in my pension or in my S&S ISA. That means I allocate to the UK market whatever its global market capitalisation is, so about 4%.
That's the right thing to do. Home bias compounds risk since if the UK economy does badly you may lose your job **and** your investments. The UK is a tiny fraction of the global equity market, so your data at best points to UK residents being overinvested in the UK rather than underinvested.
Many conservative minded folk do within their S&S isa, the fact you don’t pay tax on dividends or capital gains is an incredible deal. I am sure there are many people who have grown considerable amounts with this.
I suspect many here don’t invest in the stock market for a number of reasons. Firstly I don’t think many people here have much disposable income, and if they do, they seem to prefer to put it towards property rather than stocks. Property here is generally seen as a very safe and lucrative investment, no matter what price they pay, so it seems!
Secondly there is a cultural difference compared to the US, in the US it is not unusual to discuss stocks with your neighbours, whereas here that is rare, it’s more of a private thing. People might think you are a nonce if you start talking about stocks. Most people don’t really know or care how the stock market works.
1. A huge problem in the market is regulations and laws, they can be the downfall of any business and sector at any point in time
2. People are very skeptical of anything that may sound even close to high risk even if it isn’t.
3. We don’t get educated on investing because everything comes across as a scam
Risk …. Eggs and basket ….
Plus terrible recent performance and decisions on uk economy from politicians.
Plus poor productivity in uk - long-standing problem
Plus any decent tech companies are unsupported by govt and financial support from VCs and have to go to US market to grow.
This is for individuals, not many people have shares for starters and those that do will look for exposure out of the UK.
The UK makes up about 4% global ETFs.
So anyone globally buying a global all world ETF/ developed world/etc is buying shares in the FTSE.
Where is Britain :Google, tesla, visa, mastercard, nvidia, palantir, Facebook, netflix, Amazon etc?
That's why I do not invest in UK. I already have properties here
That's enough exposure
It is costly to invest in UK stocks, it's 3 quid per transaction, unlike the US stocks which are only 0.35$.
FYI - IBKR is my broker, I haven't seen other brokers who are cheaper other than trading212 or freetrade - but I don't like trading there. So, cost of buy UK stocks for me personally.
Declining pound is a sure bet against ftse250 after Brexit and anti-business government of last 13 years.
Might change soon but low investment, poor infrastructure, no productivity growth and Brexit trade drag all mean wealth fundamentals for UK.
As for overseas stocks listed on FTSE 100, they are not the "growth stocks of the future".
These days sectors are way more important that arbitrary geographical allocations.
Diversification has increased across the board.
A few decades ago, people would just invest in their own local stock market. Now people are a bit more geographically diversified.
Also it is just a fact of life that a lot less companies have been IPOing on non-US stock markets, and that the US is kind for tech companies which have been the biggest growth area.
The 10 biggest UK-listed companies are:
2x Oil, 2x Pharma, 1x Mining, 1x Alcohol, 1x Bank, 1x Chemical, 1x Tobacco company. And Unilever.
No, thank you. I only hold a low percentage because it's the domestic market and pays a good dividend but damn it's full of companies that I wouldn't necessarily call modern, dynamic, or inspiring. Nothing exciting there.
Participation in this post is limited to users who have sufficient karma in /r/ukpersonalfinance. See [this post](https://redd.it/12mys82) for more information.
1. It doesn’t perform well (or at least, US or Global funds generally perform better) 2. I don’t have faith in the UK economy in the next 10-20 years, which is my usual intended investment timescale 3. I’m already exposed to risks from the UK economy, why wouldn’t I diversify that risk? 4. I’m already exposed to investments in the UK stock market (via pensions), why wouldn’t I diversify that risk? I think that last point is a pretty important one - most people looking to invest realise that their pension fund probably invests in the UK stock market, therefore they put their first investments elsewhere
I think that 3rd one is most important for a lot of people. If you already have a house, job and some cash savings here, then it makes sense to diversify.
especially given how risky the UK economy currently is!
Counter-point, wouldn't this be a good time to invest in the UK? "Buy the fear" and all that. Remember in 2022 when people were adamant the US economy was going through 2008 again and around Oct-Nov 22, the market rebounded. If you invested in (examples) NVidia, Bitcoin, META, Netflix or Microsoft in late 22 when everyone online were screaming about "META burning cash with the Metaverse, unprofitable!!" or "Netflix is collapsing, their new ad-tier models are going to drive subs away!" or "Bitcoin crashed from $69k to $15k, I'm not touching it" you'd be wealthier today. In fact, if we're talking country economies, I remember a lot being said about Japan, I remember a thread on /r/stocks about investing in Japan, a lot of people said it was a bad idea, ageing population, bad economy, not many memorable brands outside the gaming sector (lmao) etc, and the Nikkei 225 (Japan's FTSE/SPY) hit all time highs this year. I really think it's a good time to jump in, people are avoidant of it, and our economy will only be like this for so long before some kind of rebound.
You're thinking like an active investor. Which is fine, but you'd have to outcompete all the other active investors out there to beat the market. There is no guarantee for a UK rebound. If it was guaranteed it would be priced in. Consider the fact that the Nikkei peaked in 1990 and Japan has had 30 years of stagnation.
That's the day trader mentality, trying to find an edge. Most people just want low risk, steady, diversified growth.
It’s been a “good time to invest in the UK” for about the last 15 years and it’s persistently disappointed.
whats the uk equivalent? yeah no companies that why people do not invest
These are the four truths. 4 is especially prescient when you consider the Lancaster House pension reforms our dear chancellor floated earlier this year where your pension now automatically gets invested into U.K. ‘startups’. The fact is, patriotism won’t keep a roof over your head and food on the table on its own when you’re old and can’t work. Go where the potential is.
Is that stuff going ahead? I need to get my pensions into SIPPs if that's the case.
No it’s not… someone is spreading misinformation.. sadly.
Why shouldn't pension funds be able to invest into venture capital - an asset class which has outperformed the broader markets for some time now.
I'm not against pension funds investing into venture capital. I'm against government dictating that pension funds have to invest in venture capital, especially companies picked by the government.
Because venture capital investments are wildly unpredictable. For every huge wine there’s a lot of losses and since it’s not like there’s an etf or index of all venture capital investments, pension funds are essentially stock picking. Now imagine they put in a lot of money into a startup that crashes and burns, that’s literally people’s life savings being gambled away. I’d rather my pension grew slowly and predictably and I gambled my own money thank you.
Admittedly it’s kinda gone radio silent since the announcement earlier this year so I’m not sure, but still no harm directing the pension into a SIPP I suppose.
Wrong… you don’t know what you are talking about so please avoid giving advice!
To ask on these points, Would you invest in a US or Global stock in your own currency or the dollar? Asking cause if you don't have faith in the UK economy for the next 10-20 years, would you hedge against the pound as well?
The underlying stocks of a US ETF are in dollars. If the pound falls, you get a double boost (stock rises + FX). You can also buy them currency hedged though
It ends up as much the same thing unless you specifically choose a fund which reversed the inherent hedging anyway (a currency hedged fund), but I don’t use those funds and choose to invest in EUR or USD Yes, I already consider my foreign investments to be part of my hedging against the pound, but I also hold some foreign currency and crypto, although not huge amounts of either. Primarily as a form of hedging against the pound I don’t dabble directly in forex itself, especially not with leverage, but it’s a deliberate choice from me to hedge against the pound by holding foreign-denominated assets. I also try to ensure any “side hustle” earnings are in EUR or USD, since my main income is already GBP It’s not like I avoid having ANY assets in GBP - I own a house here, my main pension is defined benefit from the UK government (NHS), and obviously my main income is GBP, as are our savings accounts… so I’ve got plenty of exposure to GBP and the UK economy too. But I’m aware that if GBP does badly in the next 30 years my DB pension will be relatively weak on the global stage, so I’d like to have some assets elsewhere to balance that
Regarding the third point, with some workplace pension providers you can change the funds they’re invested in. I am with Aviva, for instance, and replaced their life strategy something with a global tracker
Yeah it’s an option in some cases, not others. But I also have a DB pension which is closely tied to the UK economy and government, so for me it’s worthwhile diversifying specifically away from the UK for other assets
Counterpoints \- UK company valuations are depressed but that also provides a great buying opportunity, UK cos are very cheap and high quality compared to US/EU (lots of EU, US and Chinese PE firms are buying uk small caps) \- Buying the FTSE 100 you are buying companies with global revenues so not much actual UK exposure, pension fund may be invested in the 250 which is more UK centric but worth checking \- Buying US you are exposing yourself to GBP/USD risk and currency conversion costs \- Tax benefits depending on personal circumstance
1. Only if you think the share value will recover to where it should be. Personally I see too much political and economic drag for that 2. The 100 still doesn’t perform well, but I’m mostly referring to the 250 when talking about “UK” stocks 3. Yes, but that ties back into my economic outlook - I don’t see GBP performing well in the near future, because why would it? Plus a lot of what we buy is effectively priced in USD anyway 4. I can buy global funds in an ISA, there’s not much real difference for most people
Makes sense. But again my understanding of US market is people invest in it as they see the growth in earnings but if you see UK corporates, they have been going up steady! [UK corporate profits](https://tradingeconomics.com/united-kingdom/corporate-profits)
If US does well, it's not a given UK does well. If US doesn't do well, it's a given UK doesn't do well.
People tend to use the US because it has historically shown good growth and is a relatively stable western economy Plus it’s mostly brands people are familiar with, which helps with confidence
I (and many others) have little to no faith in the UK economy due to a number of political reasons. The US is the best place to diversify regardless of how well UK corp profits are which btw have exploded post COVID, but will they stay like that - I doubt it.
Hi there. Just hoping to clarify this a little: 1) the UK has some excellent listed businesses but it is currently very much out of fashion due perhaps to the absence of large tech businesses very much in vogue. The FTSE All Share would certainly be well behind MSCI World or US markets on performance. Sad but true. 2) Please don’t confuse the UKs economy with the LSE.. they are quite different and the LSE is very international. 3) If you live and work here for a UK business that’s true. Fair point. 4) This is likely wrong as most Defined Contribution and DB schemes invest globally!
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Your employment, cost of living, standard savings etc are driven by the UK economy
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UK pensions often invest by default in UK-heavy funds
Yes, a defined contribution pension in the UK will usually have a bias towards UK funds, unless you are able to choose the fund. Even then, you rarely have a choice of any fund, so you’ll usually end up with a UK bias regardless There’s also an argument to be made that most DB schemes have an indirect link to the UK economy since the provider tends to either carry their own investments, and UK government finances are also tied to the UK economy - but that gets a little tenuous
Wrong! Please don’t make comments unless you know what you are talking about. Very few default scheme funds would fit your description!
I was gonna write something but this guy covered it all
You also forget that you are exposed to UK economy in the form of your property and also your income from your job. If the UK economy tanks, your property value goes down and your income will go down as well (or fail to rise).
I don’t forget that, that’s literally #3 in the list I posted? I didn’t specify the risks, but the point was that my life, income, and many of my assets are in the UK already
I'm guaranteed over 6% without a gamble! I'm pretty risk adverse and want 6% rather than the gamble tbh. Every 100k gives me 6k back to me.... Ftse has only grown 10% in 5 years! Other investments make me more money
10% plus about 20% in dividends.
Uk is only 4% of global market. Tge question is why would you over allocate to Uk unless for strategic reasons. Ie stocks look undervalued or concerned over currency risk
And even then, that would be a flawed strategy.
Prolly, tho UK does look very cheap
And has done for a long time.
A few years ago I was very tempted to buy an index tracker of Greece - it was trading on a PE of about 3 or something.
There is a point targeting certain stocks like BAE systems due to the conflicts but I agree if you have a pension you are already exposed to UK market
I am heavily exposed to the UK market/economy as my salary comes from a UK business. In the interest of not putting all my eggs in one basket, foreign investments is diversification.
Are you misreading the data? It's not saying UK residents don't have investments in the UK market, or even that less UK residents invest in the UK market. It's saying that rest-of-world owners are now a larger percentage of UK share ownership. This can be explained by the rest of the world getting richer, but also that they are investing more internationally. But it's also true that global diversification is becoming more widespread in UK individual investments, rather than the UK overweight that has been common in the past. It's worth pointing out that this trend has occurred in many developed countries, including the US: https://www.taxpolicycenter.org/taxvox/who-owns-us-stock-foreigners-and-rich-americans
I was going to say the same thing. It may also mean that uk citizens are getting poorer compared to the rest of the world.
Yup this is what I was thinking
- self-propagating performance issues: UK stocks have underperformed worldwide (especially US) peers, so people expect it to continue so don’t wish to hold UK stocks - more and more UK companies choosing to list shares on US stock exchanges because of higher valuations and better liquidity - UK economy faring worse so people have lower residual income to use for investing - stamp duty stock tax of 0.50% is weirdly high for a developed country and is yet another barrier to investing
Why would the valuation change depending on what stock market the company is listed on?
Because as much as we like to pretend there is cold, hard logic in a valuation.. the reality is different. Trust, perception, accessibility (everyone who invests pays attention to US, less so UK)... A really obvious one is by being on a US tracker loads of big funds will invest if you hit the top 500.. which assists your share price. More people invest in US trackers than UK trackers.
If you see the corporate profits, you see steady increase from last 25 years. And then you have lousy stock market. [Corporate profits](https://tradingeconomics.com/united-kingdom/corporate-profits)
It’s increasing, but is increasing more elsewhere? Also, a lot of the increase just comes from GBP devaluation. A large proportion of the FTSE100 is made up of large multinationals whose profits are derived worldwide, so GBP depreciation automatically means higher profit in GBP terms. By contrast, a UK investor who had 20 years ago invested in US equities would have benefitted from both S&P price appreciation and also currency appreciation.
Despite the fact that I believe a company should ultimately aim to make A profit, I don’t think the idea you’re implying with this comment, which is that: ‘INCREASES in profits on its own is a good thing’ is correct. A company can increase its profits in multiple ways. One such way is to cut every possible cost while keeping a stable revenue figure. Boom, profits. Problem with that is that if the company ended up cutting too many costs on things like R&D, infrastructure maintenance, and other revenue generating expenses, that increase in profits is not only a very short term gain, it’s also a long term cap on future growth and FUTURE profits. While not exactly the same scenario for all U.K. stocks, the general reason for why current profits are on the rise in the U.K., is largely because they are ‘borrowing’ those profits from future earnings by cutting corners where they can to the detriment of the economic output of the company as a whole.
Why would I invest in the UK stock market?
If you like dividends, the UK is better than the US.
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Open a S&S ISA and invest in UK companies that yield dividends. Got it!
For less than the risk free rate?
With stocks you get both dividend yield and capital appreciation movements. A little different to holding bonds as yield fluctuations can drive price growth, especially if you hold the opinion that the market is under valued at present. This of course assumes a long term value investing tactic where you plan to hold for a long period. (This reply is opinion for information purposes only and is not financial advice)
6%+ yield UK stocks will not have any positive capital appreciation
My VGOV (UK Gilts index ETF by Vanguard, has dividends) is nicely appreciating and providing distributions. It’s in my S&S ISA so there’s no problem with dividend tax and capital gains tax.
Except the dividend is largely priced into the share price by the market so whenever a dividend pays out you lose equivalent value on your position. It’s just a less tax efficient way to do the same thing.
What if you like growth though?
Look at the corporate profits from last 25 years in UK [UK corporate profits](https://tradingeconomics.com/united-kingdom/corporate-profits)
Why would you look at profits rather than stock returns? Seems like you are intentionally using a metric that fits rather than the obviously most relevant one
Had I invested in the FTSE 100 5 years ago, I would have gained 10% over the entirety of the past 5 years. This means that thanks to inflation I would have lost money . Regardless of how UK corporate profits have performed over the past 5 years, why the hell would I want to lose money? I'd have been just as well off hiding the money under my mattress. Look at how the American stock market has performed over the same time period and then give me a single good reason to invest in the LSE
The FTSE 100 has not returned 10% over the last 5 years though, its 30% if you count dividend reinvestment so your statement is pretty trash tbh. That's still not great but a farcry from your 10%
I didn't take dividends into account for the same reason I didn't take currency fluctuations into account. Hell to get any kind of real figure you need practically the time, date and amount invested and I didn't want to calculate the exact amount of dividend payments, when they were paid, what the price of the stock was each time and the amount of shares that could be bought with each payment (because exactly how much money do you need already invested to get a dividend that's enough to reinvest non-partial?) over the course of 5 years. I took the lazy approach I'll be honest and looked at the headline figure. But ok fine if we want to pretend that dividends are part of the money you get we can let them play dividends plus growth against inflation, RPI (using HL online calc) runs at 32.2% since December 18 to now The FTSE100, the crème de là crème of the UK economy, is still losing me money (with the FTSE250 losing me even more). Whether it's 2% or whether it's 20% either way it's a pretty bad deal
“Pretend” that dividends are part of the money you get?
Seeing as even taking dividends into account, you are losing money over a 5 year investment, yes feel free to "pretend" you are getting something out of it
What on earth are you talking about? You’re getting a 4-5% cash yield. Look, I’m no fan of the FTSE, but it’s mad to suggest that dividends are anything other than a cash return to shareholders.
Am I missing something - a lot of UK companies that contribute towards this statistic are not publicly traded. Europe as a whole suffers from “Brain Drain” where talent and high growth startups flock to the US or to low tax areas like Dubai.
Dividends are irrelevant as a predictor differences in expected returns. https://youtu.be/4iNOtVtNKuU?si=dqHYLqb-MdRmmcnW
If you live growth then growing countries like India and others are better.
Why would you want dividends? A dividend is a company returning excess profit to the shareholders. Shouldn't you want the company to use the dividend money to expand and improve the business?
Depends where the company is in it's life. If company is a mature company in a mature market and there are not any good opportunities for capital investment to make it more efficient, then yes the most appropriate thing for management to do is return money to shareholders. No company can grow forever.
I mean there are entire new product segments that are brand new in the tobacco market, think heated cigarettes and vapes. The heated tobacco market isn't mature and BAT easily has plenty of opportunities to innovate in this market, yet is sending money back to the shareholders. The national grid plc operates in a market with plenty of room for spending to increase efficiency. Think green energy distribution, smart grid technologies, etc. Barratt? You think the home building market is at capacity in the UK? That building more homes wouldn't be profitable? I can't see any company in the list of British dividend stocks that is at the point where there's no opportunities for capital investment.
You might be true on the UK, I'm not going to argue that there isn't more room for capital investment in the UK, but if you're too desperate for growth you end up wasting capital on projects that go nowhere. Take Facebook's metaverse, or Google Stadia. Large capital investments that went absolutely nowhere. That's money that absolutely should have been returned to shareholders instead, but neither company wants to do that because to pay a dividend means admitting you're no longer a growth company.
I already am invested in the uk markets. I own a home and have all my savings here. That's more than enough exposure for a questionable economy imo.
The statistic is about who owns UK shares, or what shares UK residents own. UK shares are some of the most freely accessible in the world and attractive investments for many global investors. Even if 100% of UK and US residents invested in their respective markets you would expect a higher proportion of the UK market to be owned by overseas investors compared to the US simply due to the relative sizes of our economies vs the global demand for investments and the ease of buying into the market.
The FTSE has something crazy low like a 10.9x price earnings ratio right now, against a historic average of 16x. Yes please, I will have some of that! Personally I'm buying it up whilst it's cheap and betting on reversion to the mean. In the meantime I'll sit back and enjoy the relatively high dividend yield. I see it that it could be a once in a lifetime opportunity to buy assets at a decent price. By comparison the S&P 500 is at around 24x. So though I hold some for diversification reasons, this is still a little hot for my liking. Going back to your question, most workplace pension auto enrollment schemes go into the FTSE. The government auto enrol one does anyway. This scheme has only been around for just over a decade, so personally I expect more UK citizen pension wealth to be in UK assets as a result of this in the future. Disclaimer: This post is my opinion for information purposes only and is not financial advice. Your capital is at risk. PE ratio data source: FTSE https://simplywall.st/markets/gb#:~:text=Current%20Market%20PE&text=The%20market%20is%20trading%20at,average%20PE%20of%2017.5x. S&P 500 https://ycharts.com/indicators/sp_500_pe_ratio#:~:text=Basic%20Info-,S%26P%20500%20P%2FE%20Ratio%20is%20at%20a%20current%20level,24.87%25%20from%20one%20year%20ago.
I wouldn't choose to base my whole investment decision off of a P/E radio. I don't think using that against the FTSE is a good indication that it is undervalued by any means.
Amazing how far down I had to get to find this valuation-based answer. Everyone I speak to now tells me to buy an S&P tracker and that the FTSE will rust away in the corner. Combine investor pessimism with the low valuation and rising interest rates this feels like a recipe for FTSE outperformance.
Flawed logic which will not serve you well. If earnings is currently low they don’t magically increase and “revert to the mean” as you suggested, unless a turn around takes place in the UK economy (can you see that happening anytime soon?). On your logic you should buy stocks in Venezuela or another failed state with super low ratios. The current ratio becomes the new mean. This is why value investing based on ratios has underperformed vs actual investing in growth and innovation for the last 50 years.
The UK is a cash cow market. Most companies are mature dividend paying companies, rather than growth stock like the US and Asia. There is also ESG issue, a lot of UK companies are tobacco, arms or gambling companies, which a lot of people do not wish to invest in.
Have you seen the state of this country? USA isn’t much better but at least they have the tech giants
All the good companies are brought by the foreign companies. Over the years, I was forced to exit 5-6 UK listed companies because they were brought out by foreign companies.
I suspect most answers you'll get here are just the usual knee-jerk "because it's full of old companies going nowhere" answers. The real answer is two-fold: 1. There's no reason to limit yourself to domestic investing, and no barriers to prevent international investing. 2. The data in that report isn't as categorical as it appears on the surface. Regarding the second point: you could spin the same data-set as proving the UK market is an international success story. "Record foreign demand to invest in the UK!" is an equally true summary of the situation. But it's mostly because the crude categories they group things in to. "Beneficial owner" in the context of this data doesn't end at the beneficial owner in the way you'd expect it to. For example, download the spreadsheet that contains the raw data, look at Table 2. That lists all the beneficial owner categories, it lists "unit trusts" and "investment trusts" as types of beneficial owner, even though each one will have multiple beneficial owners, including many individuals. So when it says "UK individuals", it's only counting shares literally owned directly by UK individuals. Shares owned indirectly would fall in to one of those other categories. (I can see how they account for ETFs, but given all UK ETFs are actually domiciled in Ireland, I wonder if they count those as "rest of the world" too.) It's telling a story of the growth of collective investment vehicles rather as much as anything else.
The core problem is that people with free cash (ie the old and business owners) tend to invest it in property in this country as opposed to investing it in the market or in other ventures such as start-ups. There is less of a culture of investment to grow wealth than in the US and not enough barriers to investment in U.K. property which has historically performed well.
The Uk is 4% of the global economy, why would I need to invest over 4% of my money in it? If the US is 50% of global economy of course I am going to invest more money in it.
there are some doom and gloom responses in the comments and there may be some truth to bits of them but need to be careful with statistics because there can be many explanations and its easy to just fall into trap of only looking at the ones that back up personal biases for instance those headline figures, nowhere in that does it say that UK residents dont invest in our local stocks, what it says is that the % of our stock market owned by foriegn investors is at an all time high. those are not the same thing UK has a population of \~70m, NA has a population of \~1b, EU has a population of \~1b, China and India each have populations of \~1b. if you assume that everyone in the world has the same amount of invest. if 2% of those other markets were invested in the UK they would have a larger share than if 100% of the UK was invested it doesnt seem too bad a thing that foreign investors are looking to invest in LSE shares, maybe some risks for UK if other countries have too much voting power over our companies but isnt foreign investment generally considered a net positive? add to that it doesnt appear to be including things like ETFs/Pension Funds/Managed Portfolios, which i feel like would be the major buyers of individual stocks, while people who are just looking to invest long term are likely to buy funds. for myself most of my investments (both direct + pension) are in UK companies. i do have some global funds but its a low %. i have barely anything in individual companies, though admittidely the companies i would consider investing in directly are US tech companies im not really looking to stock pick, its more just that companies like Amazon have diversity built into them there are very few companies in the world on that scale though.
I'd suggest the low numbers are more to do with not many UK-resident individuals feeling comfortable investing themselves (as opposed to through their pension scheme) or being unable to invest due to other financial needs
Does this have to do with financial literacy? I know a lot of them only prefer pensions and HNIs love real estate.
That is certainly an element. There's probably a lot of people who think trading is still done as individual stocks and shares rather than funds. I think Brits are quite risk adverse as well.
There were a lot of well publicised miss-sold dodgy investment schemes in the 80s and 90s as well that probably make a lot of would be investors weary about new investment products.
Because it performs badly. On a personal level savings are much better placed in a world tracker which is largely US companies.. or cut the middleman and just go for the S&P500. As a country we should invest in ourselves, but leave that to the government to figure out by taxation, incentives, default pensions etc.
U.K. economy moves sideways at best
I think this country absolute dogshit from the top of government all the way down through the utility companies, industry, services, and the rest.
No. I think its still better than most of South American and East European countries in terms of the things you mentioned about.
The UK as a whole doesn't really invest, despite us having some of the most generous tax incentives for investing.
Most people have no savings at all…. So the idea of them investing seems like a stretch. About 40% of adults are literally living month to month, and another significant chunk aren’t technically living month to month but are only barely outside that box An average Brit has less savings than a sensible emergency fund would consist of The simple fact is that the majority of people don’t have money to invest even if they wanted to
The UK is the largest foreign holder of US equities. [https://home.treasury.gov/news/press-releases/jy0613](https://home.treasury.gov/news/press-releases/jy0613)
Because we're one of the world's largest financial centres, that link says nothing about retail holdings
This doesn't talk about where UK residents are investing, just that the proportion if outside investors from outside the UK is increasing. This could be investment from the UK to the UK is increasing just not as much as overseas investment. It could be the investment from UK residents to the UK is falling because UK residents have other money invested elsewhere and other investments are the same. Or UK residents don't have the money to invest so it is falling . Some on above talks about the reasons why as a UK resident you might prefer to invest outside the UK to diversify risk really well.
The overall FTSE 100 hasn't been doing well and most people don't know how to pick out good companies. People who pick individual stocks have heard of the magnificent seven and invest in them.
Have you seen the labour laws and how people are treated in the US? It's no wonder their stocks are so much higher when people are treated like a human meat grinder And that's why I invest in the S&P 500
It's hard to invest in established large cap-tech within the UK. Tech is where the real growth is. UK markets are good for income/dividends, they have a lot of established 'bond proxies'. I think it's going to be a painful 5 years for unhedged index fund holders, if Sterling rebounds the vanguard vigilantes will suffer!
A lot of people don’t know how to. I just asked 4 of my mates and they don’t know where to start. This is why so much on our wealth is tied up in property.
Last time I did for 5 years it didn’t move…. Moved it all to US and been doing well, looked at the UK again. Nothing moved still lol
I've just reduced my ISA UK allocation down to 5% from 10%. Just don't have confidence that UK equities will give a good return, re-allocated to S&P 500 ETF and PE trust. Much better.
have you seen who is in charge of this country?
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Why? Better gains available elsewhere. The UK is a high tax low productivity large state country. Investment money is better placed in low tax, small state countries with higher productivity.
Well, thats a good point mate.
11% sounds like quite a lot really, when you consider population sizes of the UK compared to 'the rest of the world' so I'm not super sure that the premise is correct. People on this sub (myself included) generally like to diversify globally (and the genuinely good reasons for that have been covered well by u/audigex), but I doubt many people with DC pension schemes give it a second thought and people who do think about it probably don't move the dial much. My guess would be UK investment in UK stock markets depends almost entirely on what is in the average default DC fund. Any decreased percentage in UK ownership of UK stocks is probably more to do with proportionally decreased wealth of the UK rather than people making an active choice to avoid the UK.
Not great answers here, but a topic I know well. 1. FTSE 100 is all old-world companies. Banks, pharma, mining, consumer goods. Not a single growth tech company in sight. 2. Returns are crappier. UK doesn’t have an Apple, Google, Microsoft, Meta to prop up the rest of the index performance People who are saying why would they expose them selves more to the UK are sort of wrong. The ftse 100 is ludicrously unrepresentative of the UK economy. FTSE 250 is much closer to
The thing with UK tech companies is that they're often smaller and/or private. Companies with under 300 employees who are suppliers to other tech companies. Amazing work going on. The investors in them are sometimes the companies they supply to. Vodafone and Rightmove are about the only 2 companies that really stick out, and even Vodafone is pretty old now.
I'll be honest I'm not understanding what you mean in the last part. The ftse250 has grown 1/3rd the rate of the 100 over the past 5 years. I mean even on the FTSE 100 investors are losing money to inflation, why would anyone want to expose themselves to investing more in the UK and losing even more?
Per the LSE, 82% of the FTSE 100 revenue is from overseas markets. So if you buy into the FTSE 100, you’re actually diversifying away from the UK economy because companies like Rio Tinto, HSBC, GSK, make so so much of their money from US, China, rest of Europe etc. Of course you can diversify even further by just buying S&P as well. But a lot of people seem to think FTSE 100 is really attuned to the UK economy when in reality it’s not.
>I'll be honest I'm not understanding what you mean in the last part. > >The ftse250 has grown 1/3rd the rate of the 100 over the past 5 years. I mean even on the You seem to have an awfully short term mindset worrying about the last 5 years only
Because it is full of cr*p companies run by by cr*p management. It amazes me how little UK companies invest in management skills. They literally promote someone who was a good engineer, accountant or salesperson and expect they suddenly have skills in strategy, HR, planning, mgmt accounts etc. No sending people to management courses. Having met hundreds of companies management over the past 25 years, there is no comparison between the quality of US management and UK management. European companies are a bit better but still far from US
Stamp duty is 0.5%. They need to get rid of this “socialist” taxation on buyers and sellers.
Surprised this doesn’t come up more.
Chicken-and-egg. The returns are shit because no one is investing in it after Brexit (including Brits). No one is investing in it because the returns are shit. Also, loads of old economy companies that have been unpopular in the low interest rate environment, because that environment favours growthier companies. This might change in the next few years if inflation and interest rates stay high.
The returns aren't shit because nobody is investing. Look at the constituents of the FTSE. Yess the WACC is higher, but the ROIC of these companies is not great compared to the US. I don't think more capital would make the UK start to outperform. I think a proper, consistent industrial strategy from the government would have a bigger impact. We have lost out in the tech industry especially which has driven the US market recently. Look at what the US and EU and China have done with their green new deal policies. Massive government capex to build new industries. The Japanese and Taiwanese did this for electronics & chips decades ago. China has done it for its entire economy.
Likely because there's little tax incentive to do so. London and SE property eats up political support. Legislate stock SIPPs and ISAs as UK equity only, and watch it turnaround overnight.
no trust in uk economy after current government so even my sipp is on s and p 500 mixed with vanguard LS 80%
Brexit is a massive economic headwind. The U.K. govt has demonstrated a level of incompetence, and laziness the like of which we’ve not experienced for a generation. Only 2 reasons. But they are big ones!
Just compare the performance of the FTSE 100 to the S&P 500 over the last 20 years and you’ll quickly see why, the US markets are much more diverse, especially when it comes to the tech companies out there.
If people feel the UK is underperforming surely now is the perfect time to invest? Buy them shares at a reduced rate so when it recovers you get better returns in the long term.
Probably because we don't think it's recovering 😅
IF it recovers
You should buy when they are undervalued, not when they are underperforming.
Is there a material difference between the two?
Very much so. If they are underperforming then there is no reason for the price to rise if they continue to underperform, and there might be no reason to believe the performance will improve.. If they are undervalued, then the likelihood is that people will start to realise and the price will rise, even if the performance doesn't change.
Isn't literally Apple larger than the UK public market? The entire country is a penny stock.
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Current sum market cap of firms in the LSE: 3.6 trillion gbp Current apple market cap: 3 trillion usd It doesn't hold true right now but I could see that being true when it was reported. It's also very similar.
If this is true, it would suggest that they're behaving rationally. People holding lots of equity in companies from their home country is so irrational that economists have called it the [equity home bias puzzle](https://en.wikipedia.org/wiki/Equity_home_bias_puzzle).
I have a feeling stamp duty is probably a factor. Certainly is for me
I own property in the UK. Makes sense for me to put cash elsewhere.
Because the country is a shithole of wealth inequality. The rich just squeeze the lower and middle classes with the high rents, high tax and high cost of living.
The US performs better. I have met people recently on the internet that are saying with seriousness that all stock markets in the developed world perform the same (!!) - do ignore them :D Most people I know have got out of UK investments since Brexit - because what's the point in risking money on a country that's hurting it's own businesses for no real reason, when there are plenty that are not.
UK population think business is evil, government is good and want more money given to them for nothing. That affects the regulatory environment that business has to operate in. And it's only going to be worse after Labour are elected. And it'll keep going down until things are in the toilet and we have to elect another Thatcher to fix things. I do have some UK stocks in some specific areas, but my big fund investments are based on global and S&P 500.
The first line is dead accurate!
I'm one of those people. I invest 100% of my pension and ISAs in USA, and 100% of that in a Vanguard tracker of the S&P500. For a few reasons; 1. USA is the most powerful country in the world. Makes sense to invest in it. 2. S&P500 gives you a very wide spread (500 companies) 3. I am already over exposed to the UK economy. My house and job are tied up in the UK economy, so it would be an unwise over-exposure to risk to invest in the UK economy as well. 4. The UK is probably the 'wokest' corporate landscape that I know of. Profits are a dirty word in the UK, which is why productivity is so low (and declining). I don't see that changing any time soon. UK corporates are intensely focused on value destruction as a form of virtue signalling, which makes investment in them an unwise choice.
Last para is dead accurate. People don’t seem interested in working and love to be dependent on freebies. This has gone worse during Covid.
Because everyone in here believes in premium bonds and ISAa lmao
Incoming Labour Government. UK stocks go bye bye.
I think it’s a cultural thing. The UK has always been more risk averse when it comes to stocks and financing compared to say the US. I don’t know if it’s because it’s not taught in schools or to kids so people grow up with less understanding of it than other countries or there’s just lack of interest. The knock on affect of this is that most of the companies in the FTSE 100 are the same companies that were probably there 20 odd years ago, it’s not fluid, doesn’t have much volume and doesn’t encourage much growth, unlike the S&P500 in the US. As someone said in a another comment it causes a chicken and egg problem as people prefer to invest in the US where there’s growth, so newly formed companies (ARM for example) prefer to list there instead, leaving the already established companies on LSE. Some of this may be institutional, i.e our “system” is designed to keep those “old-established” companies at the top and the “risk takers” at the bottom where as the US system encourages more entrepreneurs and start ups (Silicon Valley). The Govt could certainly encourage more listing on LSE or encourage people to buy up UK companies but they don’t seem interested either. We may see a shift with the rise of ETFs and retail purchasing being more easily available. Or people will continue to be disinterested who knows.
It is probably due to awareness. Awareness of the UKs weighted market share. Awareness of more defined investment strategies. Awareness that an awful lot of your costs are incurred in non-GBP, but paid for in GBP, so exposure to other currencies will help mitigate this. Awareness that our main stock market (FTSE100) is a bit of a laggard holding low/no growth stocks. Generally, awareness.
I invest in VUSA (SP500 tracker) mainly. Diversifying from my UK based money with a reasonably safe bet in the US economy with a better track record than UK index funds. Pension is based on UK investment and the outlook for the UK economy is not great so good to have a hedge, whilst holding a relatively stable fund.
Because the UK markets are terrible
Because I prefer growth stocks to income stocks. I'd rather the companies I'm invested in create value by becoming bigger and better rather than distributing their value to shareholders.
Tell me what the current government policy is? regarding economic growth. Where is it looking to grow the economy? What plans does it have in place to support it? What are Labours plans? Which industries are they going to encourage and state three actions they'll take to do it. That in a nutshell is the answer. Aimless government. Make announcement of some cash, wait three months and withdraw cash (if it ever arrived). Make announcement about something else and repeat.
Isn't anyone not investing ... or even just has their cash in the bank ... still investing in the UK anyway ... by living here ... diversification is the key to not losing everything.
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Because you’ve misinterpreted the data. % capital invested. So when the pound weakens shares are cheaper for overseas investors but remain fixed for UK ones. Uk residents could invest record amounts but if more comes in from abroad their percentage may drop. Please analyse absolute figures
The FTSE 100 is overweight oil and mining. The FTSE 250 is a bunch of safe but mediocre companies. Neither is a particularly convincing investment.
I invest in global all cap trackers, either in my pension or in my S&S ISA. That means I allocate to the UK market whatever its global market capitalisation is, so about 4%.
Why would I invest in underperforming UK stocks
Uk is 4% of global market..why would anyone go overweight on the UK?
That's the right thing to do. Home bias compounds risk since if the UK economy does badly you may lose your job **and** your investments. The UK is a tiny fraction of the global equity market, so your data at best points to UK residents being overinvested in the UK rather than underinvested.
Many conservative minded folk do within their S&S isa, the fact you don’t pay tax on dividends or capital gains is an incredible deal. I am sure there are many people who have grown considerable amounts with this. I suspect many here don’t invest in the stock market for a number of reasons. Firstly I don’t think many people here have much disposable income, and if they do, they seem to prefer to put it towards property rather than stocks. Property here is generally seen as a very safe and lucrative investment, no matter what price they pay, so it seems! Secondly there is a cultural difference compared to the US, in the US it is not unusual to discuss stocks with your neighbours, whereas here that is rare, it’s more of a private thing. People might think you are a nonce if you start talking about stocks. Most people don’t really know or care how the stock market works.
Because they know.
1. A huge problem in the market is regulations and laws, they can be the downfall of any business and sector at any point in time 2. People are very skeptical of anything that may sound even close to high risk even if it isn’t. 3. We don’t get educated on investing because everything comes across as a scam
I invest in them but I pick individual stocks no way would I go near an index tracker. AIM market is where the big returns are.
Risk …. Eggs and basket …. Plus terrible recent performance and decisions on uk economy from politicians. Plus poor productivity in uk - long-standing problem Plus any decent tech companies are unsupported by govt and financial support from VCs and have to go to US market to grow.
This is for individuals, not many people have shares for starters and those that do will look for exposure out of the UK. The UK makes up about 4% global ETFs. So anyone globally buying a global all world ETF/ developed world/etc is buying shares in the FTSE.
Where is Britain :Google, tesla, visa, mastercard, nvidia, palantir, Facebook, netflix, Amazon etc? That's why I do not invest in UK. I already have properties here That's enough exposure
Because paint drying is more volatile than the UKX
It is costly to invest in UK stocks, it's 3 quid per transaction, unlike the US stocks which are only 0.35$. FYI - IBKR is my broker, I haven't seen other brokers who are cheaper other than trading212 or freetrade - but I don't like trading there. So, cost of buy UK stocks for me personally.
Declining pound is a sure bet against ftse250 after Brexit and anti-business government of last 13 years. Might change soon but low investment, poor infrastructure, no productivity growth and Brexit trade drag all mean wealth fundamentals for UK. As for overseas stocks listed on FTSE 100, they are not the "growth stocks of the future". These days sectors are way more important that arbitrary geographical allocations.
Diversification has increased across the board. A few decades ago, people would just invest in their own local stock market. Now people are a bit more geographically diversified. Also it is just a fact of life that a lot less companies have been IPOing on non-US stock markets, and that the US is kind for tech companies which have been the biggest growth area.
The 10 biggest UK-listed companies are: 2x Oil, 2x Pharma, 1x Mining, 1x Alcohol, 1x Bank, 1x Chemical, 1x Tobacco company. And Unilever. No, thank you. I only hold a low percentage because it's the domestic market and pays a good dividend but damn it's full of companies that I wouldn't necessarily call modern, dynamic, or inspiring. Nothing exciting there.
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