How to Invest in British Stocks

The United Kingdom (UK) – made up of England, Northern Ireland, Scotland, and Wales – may have lost some of its former power and influence, but it remains one of the world’s largest economies.

What makes the United Kingdom interesting for investors?

The United Kingdom is the second-largest economy in Europe, after Germany. Nominally, it is also the sixth-largest economy in the world. It has a diversified economic structure.

The UK is home to numerous internationally-known, longstanding companies that are often considered to be somewhat undervalued stocks with good shareholder dividends. The service sector forms the backbone of the British economy, with the financial sector playing a particularly important role. The Global Financial Centres Index 2023 names London, England’s capital, as the world’s second most important financial center. Additionally, the UK also hosts many global companies that produce and deal in raw materials and other commodities.

Which indexes track the British stock market?

The FTSE 100 is considered to be the main UK stock market index. It is made up of the 100 most highly capitalized stocks listed on the London Stock Exchange (LSE). The weighting of companies in the index is by market capitalization only, with no caps. The index represents around 80 percent of the UK stock market, in terms of market capitalization.  

Table 1: The ten most heavily-weighted stocks in the FTSE 100

Source: Index publisher. Date of publishing: June 28, 2024. Date recorded by moneyland.ch: September 10, 2024.

The FTSE All-Share index is much more diversified than the FTSE 100 index, in terms of the number of stocks included. It tracks all of the stocks listed on the London Stock Exchange, as long as they meet certain criteria. The index represents 98 percent of the London Stock Exchange’s total market capitalization.

The MSCI United Kingdom is another index you should know about. This index, which is published by US financial services provider MSCI, tracks 79 LSE-listed stocks that collectively make up around 85 percent of British free float market capitalization.

Swiss company Glencore, which is headquartered in Zug but lists its stock on the London Stock Exchange, holds a prominent position in major British stock indexes.

Can I invest in British stocks using ETFs?

Yes, you can invest in all of the stock indexes mentioned above using exchange-traded funds (ETFs). These funds aim to replicate stock market indexes as accurately as possible by using the index’s makeup as the basis for their investment portfolios. By buying shares in an ETF, you can invest in all of the companies tracked by an index without having to buy shares in each company individually. ETFs are traded on stock exchanges just like the stocks of companies.

Table 2: Selection of ETFs that invest in British stock indexes

Sources: Fund managers, Justetf.com. Date: September 12, 2024.

ETFs that invest in the FTSE 100 stand out because of their low fees, shown as the total expense ratio (TER). Four of the six ETFs have TERs lower than 0.1 percent. By comparison, the cheapest ETF for investing in the Swiss stock index SMI has a fee of 0.2 percent.

In addition to the TER, you should also pay attention to the brokerage fees and custody fees charged by your stockbroker. It is beneficial to compare stock brokerage offers before you begin investing because your stockbroker’s fees can have a substantial impact on your investment’s final performance.

What are the risks of investing in British stocks?

As a general rule, investing in stocks and ETFs always comes with a risk of losing money. Major losses can occur at any time. That is especially true if you invest in just a few individual stocks. Diversifying your portfolio in order to minimize the risk of loss is beneficial.

• Political and economic risks: The UK’s economy has been relatively turbulent in recent years. It was exceptionally hard-hit by the 2008 financial crisis. The UK’s gross domestic product (GDP) per capita remains below its 2007 level (as per 2024). The UK’s withdrawal from the European Union at the end of 2020 has also played a role, with many economists believing that the withdrawal generated high costs for the British economy.
• Exposure to global risks: Many British companies are heavily integrated into the global economy – and are therefore dependent on global markets. Fluctuations in the global economy and negative international events can have an exceptionally strong impact on the UK’s economy.
• Currency exchange risks: When stocks are traded in a foreign currency – as is the case with British stocks – then the performance of that currency against the Swiss franc has a substantial impact on real returns for Swiss investors. In the case of British stocks, if the pound Sterling were to lose value against the franc, that would negatively impact your real returns in Swiss francs. On the other hand, if the pound were to gain value against the franc, that would positively impact your returns.

How profitable are British stocks?

A performance comparison of ETFs that invest in the British FTSE 100 index, the British FTSE All-Share index, the Swiss SMI index, and the Swiss SPI index, shows that the British indexes have delivered lower real returns in Swiss francs. That is largely due to the devaluation of the pound Sterling against the Swiss franc.

Table 3: Performance comparison of British and Swiss stock index ETFs

Source: Justetf.com. Dates used for performance calculations: September 10, 2014; September 10, 2019; September 10, 2024.

Important: This article is provided for educational purposes only and should not be considered investment advice. moneyland.ch does not accept any liability in relation with the content of this article.

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