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Learn how to get started investing in international stocks. We’ll show you the advantages and disadvantages of buying foreign stocks, how to work out how much to invest, and how to place a trade. We’ll also list some top-performing international ETFs and stocks over the last 10 years so you can see what has done well in the past, but remember that past performance is not a reliable indicator of future results.
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Investing in international shares provides several benefits compared to only investing in domestic stocks.
According to global market capitalisation, the UK domestic share market only accounts for about 5% of all stocks available. Investing in international shares provides access to the other 95% of the global market.
Diversification is a cornerstone of most investment portfolios. International shares provide a way to diversify more broadly than only investing in domestic shares.
Some international markets perform better than the UK market at various times. For example, the US market has consistently outperformed the UK market in the last 10 years. Investing in international shares may help to capitalise on that. However, this won’t always be true, so remember that past performance is not indicative of future results.
A by-product of diversification is that portfolio risk tends to drop, since not all international markets move in the same direction with the same magnitude.
International shares present different risks and obstacles from domestic stocks.
Not all international assets can be held in tax-protected accounts, such as an ISA. Small companies listed on minor foreign exchanges, for example, are not allowed.
International shares may be affected by news or events unfamiliar to or inaccessible to UK traders.
Some foreign markets have poor liquidity because there are fewer active traders. This is more common in emerging and frontier markets that are less developed than the UK or US.
Finally, there is currency risk. A UK trader buying US stocks means they need to convert pounds to dollars to make the purchase. When the stocks are sold, and funds are converted back to pounds, the difference in exchange rates between the two conversations will affect the overall return. If the US dollar rises, the investor makes more. If the US dollar drops during the period, the exchange rate conversion will cost them. This could be offset by using currency-hedged exchange trading funds (ETFs); these help to eliminate the currency exposure of investing in foreign companies.
Developed markets: countries with advanced and robust financial systems. These countries include the US, the UK, Canada, and Australia, as a few examples. Blue-chip stocks are prominent in these markets.
Emerging markets: these are countries that are developing their financial system. Emerging countries include Brazil, Russia, India and China (known as BRIC collectively). Traders often choose to invest in emerging market funds to gain exposure to various countries.
Frontier markets: these are countries in early stages of developing their financial systems or small economies. These countries include Iceland, Kenya, and Croatia, for example.
Portfolio allocation is a personal decision. A portfolio typically consists of stocks, bonds, and other assets, each taking up a portion of the total equity. International stocks would thus take up a part of the stock allocation.
For example: if stocks are allocated 50% of the portfolio, and an investor decides to invest 20% of that stock portfolio in international shares, this could result in 10% of their total portfolio being allocated to international shares. This provides exposure to international shares but keeps most of the capital in domestic stocks.
While the exact percentage allocated to international shares is a personal choice, financial advisors typically recommend between 15% and 25% of the stock section of the portfolio. In a £100,000 stock portfolio, this would translate into £15,000 to £25,000 of international shares.
If selecting individual stocks to buy, investors typically use a value investing or a growth investing approach. The former looks for cheap stocks relative to their financial positions, while the latter looks for companies that are growing their business.
Buying international shares, ETFs, or ADRs (see below) does not vary much from buying domestic shares.
Fees for international shares can vary from buying domestic shares in a couple of ways.
Accessing a different market is more complex for a brokerage than accessing a domestic one, so fees may be slightly higher for international shares. Here are the fees involved:
Commissions: This is the transaction fee for entering and exiting a position. It may be a flat fee, a percentage of the transition value, or a fraction of a cent per share, for example. This can vary by market. Fees are typically in the currency in which the transaction is occurring. There are some brokers that offer commission free investing.
Currency conversion fees: International stocks often require a currency conversion. There is usually no direct fee for swapping currencies, but there is a spread between the buy and sell prices. For example, if you converted pounds to US dollars and then swapped it right back, you would lose a few percent even if rates remained unchanged. Therefore, the fewer currency swaps, the better. Some brokers will also charge a fee for doing this currency conversion, anywhere from between 0.5% - 1.5%. If doing a lot of trading in another currency, consider opening (if possible) a trading account funded with that currency. This way, currency conversions are avoided on all transactions in that currency in that account.
International stock markets have indices that track their general performance. These indices are typically tracked and traded with ETFs. Most international ETFs are listed on US stock exchanges. These funds provide a good indication of how international stocks have performed over the last 10 years.
These returns are not adjusted for currency fluctuations. They reflect the raw performance of the countries.
The return is the total percentage of holding the 10-year period (7 November 2011-5 November 2021), based on data from Yahoo Finance.
| ETF name | Expense ratio (% deducted as fees) | Total 10-year % increase |
|---|---|---|
| SPDR S&P 500 (SPY) | 0.09% | 273.56% |
| iShares MSCI Taiwan ETF (EWT) | 0.59% | 157.17% |
| iShares MSCI Japan Index Fund (EWJ) | 0.51% | 86.29% |
| iShares MSCI Germany Index Fund (EWG) | 0.51% | 67.33% |
| iShares MSCI Canada Index Fund (EWC) | 0.51% | 43.66% |
| iShares China Large-Cap ETF (FXI) | 0.74% | 10.55% |
| iShares MSCI Australia Index Fund (EWA) | 0.51% | 12.81% |
| Vaneck Russia ETF (RSX) | 0.61% | 1.73% |
| iShares MSCI Mexico Index Fund (EWW) | 0.51% | -10.94% |
| iShares MSCI Brazil Index Fund (EWZ) | 0.59% | -50.41% |
Please remember that past performance is not a reliable indicator of future results.
These are the best-performing international stocks over the last 10 years. The existence of such big returns make it look easy to have achieved this, but having a trading edge is required to capture above-average returns. All listings are US-based stocks and the data is taken from Yahoo Finance.
| Stock and ticker | 10-year total return |
|---|---|
| Celsius Holdings (CELH) | 41,480% |
| Tesla (TSLA) | 18,683% |
| GreenBox (GBOX) | 13,483% |
| Repligen (RGEN) | 8,096% |
| Patrick Industries (PATK) | 6,340% |
| NVIDIA (NVDA) | 7,563% |
| Genmab (GMAB) | 7,105% |
| Dexcom (DXCM) | 7,753% |
| Netflix (NFLX) | 7,151% |
| BioLife Solutions (BLFS) | 10,355% |
Please remember that past performance is not a reliable indicator of future results.
These are the biggest companies listed on public stock exchanges globally and the countries they are listed. As of early November 2021, market capitalisation prices are in USD. This is a snapshot which is subject to change.
FAQs
Yes, if the shares are listed in a major exchange in another country. If the stock is not listed on a major exchange, it can’t be held in an ISA. Check with your brokerage if in doubt.
International bonds can also be purchased inside an ISA. The bonds themselves must trade on a major exchange, or the issuing company must be listed on a major exchange. One of the more significant global bonds funds listed in the UK is the iShares Core Global Aggregate Bond UCITS ETF (AGBP).
ADRs can be purchased in an ISA account, but the “major exchange rule” still applies to the original listing country. An ADR is a stock outside the US listed on a US exchange. The original stock in the country of origin must be listed on a major exchange; what exchange it is listed on in the US doesn’t matter.
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