How To Invest In International Markets – Forbes Advisor UK

Whether you are a seasoned investor or just getting started, buying the shares of companies listed on overseas markets potentially offers opportunities to grow your portfolio. 

Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

Markets outside the UK offer access to a diverse range of companies, from well-established household names in the US to fast-growing companies in Asia and Europe. That said, it’s crucial to remember that investing comes with no guarantees, and there is always a risk of losing money.

Diversification into shares listed in other countries can also help you build a balanced portfolio that has the potential to withstand the impact of challenges in different economic climates.

Here, we examine how to invest in shares overseas, including buying stock directly or through a fund.

How to invest in international shares

Investors based in the UK can purchase international shares using a stockbroker, financial advisor or, most commonly, through an online investment platform. 

Those opting for an investment platform must open a general investment account (GIA), Individual Savings Account (ISA) or Self-Invested Personal Pension (SIPP) to hold the shares. 

Tax treatment depends on one’s individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

Overseas shares can be purchased in one of the following ways: 

• investing directly involves buying shares in individual companies. Generally speaking, investing in one, or even a handful, of individual companies is considered a higher-risk investment strategy. That’s because your investments may become too concentrated in one company, region or industry, which could increase the risk of making a loss. 

• investing indirectly via a fund, allows investors to purchase shares through a professionally managed fund. Investment funds pool money from multiple people together to invest in one or more types of assets, such as shares and bonds. Funds offer greater diversification because they allow investors to spread their investments across a range of companies and markets. 

Suggested Read: How To Invest In India

How to invest directly in overseas shares

Investors based in the UK can purchase shares listed overseas directly using the following steps: 

Step 1: Research and select a stockbroker

To get started, you’ll need to find a stockbroker, trading platform or investment trading app that offers shares in companies listed outside the UK. 

When comparing providers, it’s important to check the fees you’ll need to pay as these will chip away at your investment return. It’s also worth considering the range of international equities available, the features offered by each provider, and the level of customer service. 

It’s also important to check that a stockbroker or investment platform is appropriately registered and authorised by the Financial Conduct Authority (FCA). 

Investment firms authorised by the FCA may be covered by the Financial Services Compensation Scheme (FSCS). The FSCS protects up to £85,000 per person, per institution if a provider goes bust. 

Step 2: Open and fund an account

Once you have chosen a stockbroker, you’ll need to open an account. 

Once your personal details have been verified, you can choose the type of investment account you want to hold your shares in, for example, a GIA, stocks and shares ISA or a SIPP. 

Next, you’ll be prompted to fund your account using a bank transfer or debit card payment. 

Step 3: Research potential share purchases

Be sure to research any overseas shares you’re interested in before investing. Factors to consider are a company’s financial health and growth potential. 

Most stockbrokers and investment platforms offer educational resources and analysis to help you understand how global economic trends and market developments may affect companies in certain regions or industries. 

It’s also worth staying updated on currency exchange rates, as they can affect the value of your investment. 

Step 4: Place an order

Once you have identified the shares you want to invest in, it’s time to place an order. 

Each stockbroker or platform allows you to get the process started by selecting the company you want to invest in and clicking a ‘buy’ or ‘trade’ button.

You’ll then be prompted to choose the number of shares you want to buy or enter the value of the investment you want to make. 

Step 5: Monitor your investment

After purchasing shares, it’s essential to monitor your investment regularly. 

This includes tracking the performance of the shares and weighing up their potential going forward, given prevailing economic factors. Don’t forget that changes to the currency markets could have an impact on overseas holdings. 

Depending on your investment strategy, you may decide to adjust your exposure to existing holdings by buying new shares or selling existing stock. Bear in mind that each trade may incur charges depending on your provider. 

Alternatives to investing in international shares

An alternative to investing directly in individual international shares is to buy units in an investment fund that invests in a broad range of international companies. 

You could select a fund that focuses on investing in companies from a particular geographical area, for example, North America, Europe or an area of emerging markets.

Alternatively, you could invest in a fund that specialises in investing in a particular industry sector, or type of business, such as smaller international companies.

As with any investment strategy, diversification is important as a way of spreading the risk across your portfolio. You may also want to seek professional independent financial advice before you invest.

How to invest in international shares via exchange traded funds (ETFs)

UK investors can invest in a number of ETFs to get exposure to the performance of international shares and global indices around the world.

With an ETF you won’t directly own international shares. The ETF manager effectively creates a pooled fund by buying assets and shares. Investors can then buy and trade shares in the ETF in the same way as conventional stocks and shares. The performance of the ETF share tracks the performance of the underlying assets.

There are thousands of ETFs to choose from, including global funds and global indices, such as the S&P 500, commodities, industry sectors, such as tech ETFs, and emerging markets. 

Bear in mind that some ETFs are risky and can be volatile. It’s important to fully understand the investment risk.

How to invest in overseas shares indirectly via a fund

UK investors can gain access to shares listed overseas through an investment fund. 

Funds allow you to pool your money together with other people to invest in one or more types of asset. There are several types of fund available for UK investors including exchange traded funds (ETFs), unit trusts and investment trusts.

Funds generally offer diversification because they enable you to spread your money across a range of assets rather than investing in a single company. This helps to reduce the impact of a market downturn on the value of your overall portfolio. 

Investment funds can be managed ‘actively’ or ‘passively’. Actively managed funds are supervised by a fund manager who is responsible for choosing investments with the aim of outperforming a certain benchmark or index, such as the S&P 500 in the US. 

Passively managed funds, which are also known as tracker or index funds, use an algorithm to replicate the performance of a particular stock index.

You can purchase funds directly from a fund provider or independent financial advisor (IFA). Alternatively, if you prefer a DIY approach to investing, you can purchase them through an investing platform or fund supermarket. 

It’s also possible to invest in a fund through a robo-advisor, which offers a hybrid of the services offered by an IFA and a DIY platform. Robo-advisors use algorithms to help you create a suitable investment portfolio based on your risk profile and financial goals. 

Each route into investing comes with fees which may affect your overall return. It’s important to understand what charges you need to pay before buying into a fund to help retain your investment growth. 

Similarly to individual shares, funds must be held in a general investment account, ISA or SIPP. You’ll also need to monitor the performance of a fund regularly to ensure it aligns with your overall strategy and financial goals. 

What to know before investing in international shares

There are a number of considerations to weigh up before buying international shares:

• research the companies and markets you’re interested in: There are plenty of resources online. Remember past performance is not an indicator of future performance. Also be wary of jumping on investment trends, where recent strong performance could be short-lived
• consider seeking professional advice: consider how your planned investment fits with your existing portfolio, investment goals and attitude to risk. It could be useful to get professional, independent financial advice
• investigate tax implications: international share holdings may be liable to tax, even if your holdings are within an ISA in the UK. For example, non-US residents and citizens must pay tax (known as withholding tax) on income received from US shares. However, if you complete a W-8BEN form (more on this in FAQs section) this tax can be reduced. Find out what, if any, taxation could apply on your international investments before you buy
  Tax treatment depends on one’s individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.
• review fees and charges: there will be fees for the purchase and trading of international stocks. In most cases you won’t pay more to buy overseas stock through a UK trading platform or investment app. There are also likely to be ongoing platform fees
• consider currency risk: currency risk or foreign exchange risk relates to the fact you’re holding assets in a different currency to your own (domestic) currency. The exchange rate matters most at the point you want to buy or sell because currency movements and fluctuations can significantly change the value of your holdings.

What are the advantages and disadvantages of international investments?

Pros:

• more diverse portfolio: gain exposure to different geographical areas and company sectors, spreading risk within your holdings
• wider access: global markets may provide access to companies and industries that are not widely represented in the UK 
• growth: you could gain the potential for significant asset growth over time.

Cons:

• higher trading costs: buying and selling international shares can incur additional costs in addition to standard trading fees. This is because there is likely to be a foreign exchange fee when paying in pound sterling for international shares denominated in a different currency
• currency risk: the exchange rate and strength of the pound to the relevant currency for your international stock can significantly impact on the value of your holdings
• taxes: you could be liable for tax on dividends and capital growth on your international stock holdings (this may be the case even for stock held in an ISA in the UK). It is important to seek professional, independent financial advice to ensure you understand the tax implications.

Tax treatment depends on one’s individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

What fees and charges will apply for investing in international shares?

Depending on the broker or investment platform you use and your specific investment account, you’ll usually pay a fee when you buy and sell international shares. In many cases the fee is the same as for UK stocks. 

But there is likely to be a foreign exchange fee for purchasing in a different currency.

There are also likely to be ongoing investment management fees, such as an annual or monthly platform fee charged by your online broker. Remember to factor in all of the fees and charges as they can eat into your investment returns over time.

Why might UK investors consider buying shares in foreign companies?

Purchasing shares listed overseas allows UK investors to benefit from  diversification, which is an important strategy for managing risk. Investing in foreign companies allows individuals to spread their investments across different geographical regions, markets, and industries. This has the potential to reduce the impact of a market downturn on the value of a portfolio. 

Investing in international markets also provides the opportunity to access industries that may be under-represented in the UK, such as tech stocks. Moreover, investors can gain exposure to emerging markets, which potentially have high growth potential. 

Matt Britzman, equity analyst at Hargreaves Lansdown, says: “From an individual company standpoint, one of the biggest reasons to look beyond the UK is to gain access to more varied growth opportunities. If investors want a bigger pool of large companies in, say, the tech space, then US markets can offer more choice.

“Some foreign markets, particularly in emerging economies, may also offer higher growth potential than the domestic UK market. This can be due to faster economic growth, technological advancements or demographic trends.”

James Norton, head of retirement and investments at Vanguard Europe, says: “Diversification is crucial to long-term investment success. Many investors have a tendency to stick to their home region. It’s OK to have a bias to your domestic market but investors should keep this in check, remembering that the UK accounts for less than 5% of the global stock market.

“The main sector that has driven stock market returns over the last couple of decades, information technology and now AI, is poorly represented in the UK, so it pays to look further afield. So not only does international exposure decrease risk, it also provides a greater opportunity set.”

It’s important to note that, although investing in emerging markets offers the potential for higher growth, there is also an increased risk of losing money. 

UK investors can also benefit from currency fluctuations. For instance, when the pound sterling (GBP) is strong, individuals can buy more assets overseas. 

Similarly, when foreign currency strengthens against GBP, the value of international shares increases too. 

But bear in mind that currency movements can also pose a risk to the value of your portfolio (more on this later).

Should I consider investing in international shares?

Shares listed outside the UK offer UK investors an opportunity to diversify their portfolios and explore new opportunities for potential growth. Global markets also provide access to companies and industries that are not widely represented in the UK. 

However, as with all investments, returns are not guaranteed. International shares carry risks, such as geopolitical uncertainty, that could affect the performance of your holdings. 

Currency fluctuations can also pose a risk. When the pound sterling strengthens, the value of your international shares decreases, which could reduce your returns if you decide to sell them. 

Jason Hollands​​​​, managing director at Bestinvest, says: “When the pound is strong versus other currencies it gives investors more purchasing power when scooping up international shares or investing in overseas equity funds. 

“But when the pound is in a weakening phase, or simply another currency like the US dollar is strengthening significantly, it can also be a source of risk as the pound won’t go as far. Indeed, you may end up buying overvalued overseas shares with a weak pound, potentially a double whammy.”

Additionally, although international emerging markets can offer opportunities for growth, they may be difficult to sell. This is known as a ‘liquidity risk’. 

Matt Britzman, equity analyst at Hargreaves Lansdown, says: “Some foreign markets, particularly in emerging economies, may also offer higher growth potential than the domestic UK market. This can be due to faster economic growth, technological advancements or demographic trends.

“If investors are looking at emerging market equities, political and liquidity risks are also important. Emerging markets are often less liquid than the more mature markets of countries like the UK or US, making it difficult in some cases to buy or sell at a price that’s favourable for the investor.”