A recent portfolio clinic submitted to us held a number of overseas listed shares and exchange traded funds (ETFs). While looking further afield provides greater choice of investments, you can probably get what you need to meet your investment requirements with UK listed securities and open-ended funds available on UK retail platforms.
There are over 1,500 ETFs and 350 investment trusts listed in London providing access to a vast variety of assets, and about 1,900 companies overall. There are also about 2,600 open-ended UK domiciled funds, and some Dublin and Luxembourg domiciled funds available on UK retail platforms.
In general, it is more cost effective to hold and trade UK listed securities. Trading overseas securities typically costs more than trading UK listed securities because brokers such as Hargreaves Lansdown and interactive investor add foreign exchange charges on top of the trading fees.
There can also be additional tax charges or administration for overseas listed securities. For example, you are liable to withholding tax on US and Canadian shares though can reduce or remove this is you fill in a W-8BEN form. See Beware complications when investing overseas, IC 29.07.22
As well as the added costs, it is highly likely that you can invest in the same asset via a UK fund or listed security – or at least get exposure to something similar which achieves your investment goals just as well.
For example, the investor in last week’s portfolio clinic (IC, 21.10.22) holds US listed ETF WisdomTree Japan SmallCap Dividend Fund (US:DFJ). But he could instead hold iShares MSCI Japan Small Cap UCITS ETF (ISJP) without any extra tax or administration, or foreign exchange fees.
He also holds US listed WisdomTree Japan Hedged Equity Fund (US:DXJ) but there are many large-cap Japan ETFs listed in London. We include three in the IC Top 50 ETFs such as iShares Core MSCI Japan IMI UCITS ETF (SJPA). Or the provider of his US-listed ETF offers London-listed WisdomTree Japan Equity UCITS ETF (DXJG).
This investor also holds US-listed iShares MSCI Brazil ETF (US:EWZ) but could instead hold London-listed iShares MSCI Brazil UCITS ETF (IBZL).
And instead of SPDR Gold Shares (US:GLD), he could hold iShares Gold Producers UCITS ETF (SPGP) or VanEck Gold Miners UCITS ETF (GDGB).
Changes in the exchange rate between sterling and the currency in which an overseas security is listed will affect the value of your shareholding. This could work in your favour or detract from your return. If an ETF’s underlying assets are in another currency you already have this currency risk or benefit within the fund, but do not pay extra charges or taxes for holding the fund.
This is not just something to watch with overseas listed ETFs – those listed in London offer share classes in different currencies so make sure you buy the sterling denominated one – unless you have a specific reason to hold one in another currency. For example, if you are retiring in another country you might want to the assets from which you draw your income to be in that country’s currency.
The investor in this week’s portfolio clinic holds WisdomTree Physical Gold (PHAU) – the US dollar share class – but could instead hold WisdomTree Physical Gold (PHGP). Similarly, he holds the US dollar share class of KraneShares CSI China Internet UCITS ETF (KWEB) but could hold the sterling share class (KWBP).
This investor also holds some US listed ETFs which do not have a UK equivalent – iShares Residential and Multisector Real Estate ETF (US:REZ) and iShares U.S. Home Construction ETF (US:ITB). The latter funds are fairly specifialist and, I would argue, not necessary. Some of their holdings may be included in broader US equities funds and, if exposure to this area is really necessary, there is UK-listed iShares US Property Yield UCITS ETF (IUSP).
