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We are a middle-aged couple with three children and a US-focused investment portfolio. How can we better diversify our holdings to reduce geographical risk?
Saxo UK investor strategist Neil Wilson says it’s a common concern we hear from our clients. As a multi-asset broker, diversification is found in our DNA, and therefore we consistently emphasize its importance. As returns from the US have become stronger over the years, many portfolios have become extremely overweight in US stocks. However, dependence on the US is no longer a guarantee of success.
It will be interesting to see if the exposure is a single stock or if there is a mix of funds and exchange funds (ETFs). If you’re looking at a single stock, running your US winners and reducing losers might be the first step.
So, where else should you see? Recently, many retail investors have been doing it for a long time in the UK, Europe and Japan at the expense of the US. From an asset allocation perspective, there is clearly a benefit to looking at places where there may be secular and cyclical growth trends. Both self-invest individual pensions (SIPPs) and flexible and equity investor clients are looking to find a variety of alternatives this year.
Europe is gaining attention thanks to ease of German debt regulations and wider reindustrialization. SAXO is developing a “European Independence” shortlist of stocks related to these themes. When buying and selling foreign stocks, be careful of foreign exchange fees.
The UK is also worth considering as its post-Brexit valuation gap with the US has been closed. Between large stocks there are many defensive names and very large dividend yields. HSBC offers 6%. BP is nearly 7%. BHP is 5%. Over 7% of British Americans smoke. In the age of market volatility, these can provide some shelter from the storm.
Emerging markets could benefit from weak dollars. A wide range of funds and ETFs can provide exposure if inventory is difficult. Still, some funds, such as the JPMorgan Emerging Markets Investment Trust, account for 40% in China and Taiwan. Others, like Black Rock Frontier, offer a wider geographical spread.
This isn’t necessarily a problem for you, but passive investors can become a heavy US bias without knowing it. The MSCI World Tracker Fund invests around 70% in US stocks, with weight split into seven large, surveillanced technology stocks. So switching from a US-focused fund to a global label fund may not be as big a change as you might think.
Keep in mind that much of what is called “global” funding is actually heavily skewed into the US. It is difficult to find less than a third of global funds in US stocks. Those with large UK exposures include Linseltrain (LTI) and Brunner (but), the latter of which is 46% in the US and 24% in the UK. LTI is 62% in the UK and 18% in the US. You may find that mutual funds are a place to consider, which provide a nuanced approach to investing in global equities. Many of these are listed on the London Stock Exchange.
My ex has a poor credit rating, but she has been awarded the House and other assets from our divorce in our name. I’m worried that if they missed out on repayment it could have an impact on my credit rating and their ability to move forward financially. Are there legal options?
Kiran Beeharry, a partner in SA Law’s Family Law team, said the first issue is that the courts have the power to distribute assets and reassign legal and beneficial benefits, but not the power to reassign debt. A common diagram for courts to deal with assets and liabilities is moving the family home to one party that is eligible for an existing co-home mortgage.
Through regular payment instructions, the court may direct the parties to make payments to the mortgage. If you have instructions to pay a mortgage and this is not followed, enforcement action can be taken. The ultimate outcome could be a fine or imprisonment order if a non-payer is found to be in violation.
An application for enforcement can pressure the parties to pay the mortgage, but unfortunately the court cannot improve the damages caused to the credit rating during payment. If one party continues to miss out on mortgage payments and the enforcement action does not enforce compliance from non-wagers, the non-resident may have to match the lender regarding the foreclosure proceedings. A successful foreclosure application may end the issue. However, credit rating damage is still occurring.
The best course of action is to take precautions to prevent payments from falling behind in the first place. If one party finds that the mortgage is not affordable or may miss a payment, it is important that it be properly sued to attract the court’s attention before a final order is made.
If the court accepts that maintaining the property is not affordable or that the parties are entitled to independent mortgage capabilities, it is likely that they will need to sell the property. It cuts off any relationships related to a co-home mortgage.
The opinions in this column are for general information purposes only and should not be used as an alternative to professional advice. Financial Times Ltd and the authors are not responsible for any direct or indirect consequences arising from the reliance placed on replies, including losses.
Are there any financial dilemmas you would like FT Money’s team of professional experts to look into? Please email us your issue with confidence to Money@ft.com
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