Does Your Portfolio Suffer From Home Bias?

The run of substantial gains in the markets has been interrupted by the negative returns of the last few weeks, making 2017 seem like a distant memory for investors.

International investors have reduced their exposure to the UK due to Brexit. In 2017, the FTSE rose only 10% compared with the US at 20% and Asian markets at 25%.

This could present buying opportunities for companies that have become undervalued due to the general market sentiment. However, investors should be aware of the effect of "home bias", the tendency of investors to overrate familiar companies rather than being properly diversified.

According to Sophie Kilvert of Seven Investment Management, 9 out of 10 savers suffer from home bias:

"Home bias is understandable. People feel more comfortable investing in companies they have heard of. But most people are probably already overexposed to the UK's economic fortunes – through their job, house and wages – before they even invest."

The global nature of the London stock market can make it difficult for investors to determine how much UK exposure they actually have, due to companies that rely heavily on overseas earnings, and currency fluctuations among other factors.

Some companies that have significant earnings in US dollars for example have benefited from the fall in the value of the pound, pushing their share valuations higher.

Anthony Rayner of asset manager Miton emphasises the need for a global focus:

"During a recent 95-minute televised debate before the German election, Brexit wasn't mentioned once. If you're based in the UK, it's difficult to appreciate how this could be."

It's important that your investments are diversified and do not hinge on localised factors.

Westminster Wealth Management can assist in helping you to navigate your financial future, and expert advice is valuable in complicated times just as much as in simple ones. Contact us today.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Past performance is not a reliable indicator of future performance.