Global diversification has been part and parcel of my strategy from the get-go. The reason is simple, too: At any given moment, chances are you can find at least a few stocks or bonds in some corner of the world that offer a better potential reward (for the degree of risk assumed) than you’ll get with mainstream financial fare here in the U.S.
It’s not that I’m biased against the U.S. Far from it. Most of my investments have always carried an American zip code. I set great value on the political stability and entrepreneurial freedom we still enjoy in the Home of the Brave.
However, I also recognize that well-managed businesses exist all over the globe. If we can buy into these outfits at unusually low prices, we’ll be giving ourselves a leg up over investors who refuse to look beyond U.S. borders.
For folks who feel safest with the diversification of a fund, I suggest the exchange-listed iShares MSCI United Kingdom ETF (NYSEARCA:EWU). EWU holds 117 different British stocks, limiting the impact from problems at any single company.
This passively managed fund, which mimics the MSCI UK index, also features an annual expense ratio of just 48 cents per $100 invested — well below what you would expect to pay for an actively managed mutual fund. Dividends are typically declared twice a year, in June and December.
If you’re a do-it-yourself stock picker, you can shoot for even bigger profits with individual NYSE-listed British companies. Here are my four favorite British stocks to buy:
- Barclays PLC (ADR) (NYSE: BCS). The U.K.’s second-largest bank by assets, Barclays is shrinking its volatile investment-banking arm and refocusing on traditional lending and deposit taking. Over the next three or four years, I expect that this conservative business strategy will lead to a steadier growth path for earnings — and potentially a doubling of the dividend. BCS stock’s current yield is 2.7%.
- HSBC Holdings plc (ADR) (NYSE: HSBC). Britain’s largest bank, HSBC already pays a juicy 5.3% dividend (in dollars, not pounds). Since the dividend will likely grow at a much slower pace (perhaps 3% – 4% annually) than Barclays’ over the next few years, I regard HSBC as something of a bond substitute, with greater total-return potential than most bonds. Thus, I’m loading up on HSBC stock for my personal pension plan.
- Royal Dutch Shell plc (ADR) (NYSE: RDS.B). It’s a tough environment right now for oil and gas producers. However, integrated giants like Shell, with their massive downstream (refining and marketing) operations, can survive today’s depressed oil prices — without cutting dividends, either, as long as “black gold” mounts a halfway decent turnaround, as I expect, to the $60 – $70 per barrel area later this year. Shell stock’s current yield is 5.5%.
- Unilever plc (ADR) (NYSE: UL). Longtime readers know I’m a big fan of companies that make consumable household goods — the “bare necessities of life” (foods, beverages, soaps, etc.). Here at home, we own Procter & Gamble Co (NYSE:PG). However, PG trades at a dividend yield of only 2.8%, while UL, based in London and Rotterdam, yields 3.2%. As recently as last June, the spread between the two consumer-products rivals was running only about a tenth of a percent in UL’s favor. For new money, then, UL wins hands down.
Odds are that British stocks, because they’re now undervalued by historical standards, will chalk up better numbers than the S&P 500 over the next five to 10 years.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won nine Best Financial Advisory awards from the Specialized Information Publishers Foundation.
