<p>There&#8217;s nothing like a complete and utter political shambles (I&#8217;m guessing you know the one I mean) to remind us why we need to be globally diversified when it comes to investing. It&#8217;s prompted me to dig into my portfolio a little, to see how diversified I truly am.</p>
<p><!--more--></p>
<p>One of the aims of <a href="/2018/11/my-investing-strategy/">my investing strategy</a> over the last decade has to become more global in my outlook. I&#8217;ve done this by putting more into funds with a worldwide brief and investing in Vanguard&#8217;s All-World ETF. However, I&#8217;ve never done any proper analysis on where I actually stand.</p>
<h2>Dirty work</h2>
<p>There are tools that can help with this, like <a href="http://tools.morningstar.co.uk/uk/xray/editholdings.aspx?LanguageId=en-GB">Morningstar&#8217;s X-Ray function</a>. But I like getting my hands a little dirtier when doing this sort of stuff. Yes, it&#8217;s time for a spreadsheet!</p>
<p>I took data from the AIC site for each of my holdings (this seems to be derived from the latest fund factsheets and therefore up to date). For the Vanguard ETF, Fundsmith and Lindsell Train Global I went directly to their latest factsheets.</p>
<p>I then weighted each fund for my current position size, added a global index and global GDP figures for comparative purposes, and voila!</p>
<table id="iti">
<tbody>
<tr>
<th>Country</th>
<th style="text-align: right;">My<br />
weighting</th>
<th style="text-align: right;">FTSE<br />
All-World</th>
<th style="text-align: right;">Global<br />
GDP</th>
</tr>
<tr>
<td> USA</td>
<td style="text-align: right;"> 43.9</td>
<td style="text-align: right;"> 54.7</td>
<td style="text-align: right;"> 24.3</td>
</tr>
<tr>
<td> Japan</td>
<td style="text-align: right;"> 6.4</td>
<td style="text-align: right;"> 8.2</td>
<td style="text-align: right;"> 6.1</td>
</tr>
<tr>
<td> UK</td>
<td style="text-align: right;"> 29.6</td>
<td style="text-align: right;"> 5.7</td>
<td style="text-align: right;"> 3.3</td>
</tr>
<tr>
<td> France</td>
<td style="text-align: right;"> 1.7</td>
<td style="text-align: right;"> 3.3</td>
<td style="text-align: right;"> 3.3</td>
</tr>
<tr>
<td> China</td>
<td style="text-align: right;"> 1.2</td>
<td style="text-align: right;"> 3.0</td>
<td style="text-align: right;"> 15.0</td>
</tr>
<tr>
<td> Germany</td>
<td style="text-align: right;"> 1.7</td>
<td style="text-align: right;"> 2.8</td>
<td style="text-align: right;"> 4.6</td>
</tr>
<tr>
<td> Canada</td>
<td style="text-align: right;"> 0.9</td>
<td style="text-align: right;"> 2.7</td>
<td style="text-align: right;"> 2.1</td>
</tr>
<tr>
<td> Switzerland</td>
<td style="text-align: right;"> 1.1</td>
<td style="text-align: right;"> 2.6</td>
<td style="text-align: right;"> 0.9</td>
</tr>
<tr>
<td> Australia</td>
<td style="text-align: right;"> 0.6</td>
<td style="text-align: right;"> 2.2</td>
<td style="text-align: right;"> 1.8</td>
</tr>
<tr>
<td> South Korea</td>
<td style="text-align: right;"> 0.4</td>
<td style="text-align: right;"> 1.5</td>
<td style="text-align: right;"> 1.9</td>
</tr>
<tr>
<td> Taiwan</td>
<td style="text-align: right;"> 0.7</td>
<td style="text-align: right;"> 1.3</td>
<td style="text-align: right;"> 0.8</td>
</tr>
<tr>
<td> Hong Kong</td>
<td style="text-align: right;"> 0.4</td>
<td style="text-align: right;"> 1.1</td>
<td style="text-align: right;"> 0.4</td>
</tr>
<tr>
<td> Netherlands</td>
<td style="text-align: right;"> 0.5</td>
<td style="text-align: right;"> 1.1</td>
<td style="text-align: right;"> 1.0</td>
</tr>
<tr>
<td> India</td>
<td style="text-align: right;"> 0.3</td>
<td style="text-align: right;"> 1.0</td>
<td style="text-align: right;"> 3.3</td>
</tr>
<tr>
<td> Brazil</td>
<td style="text-align: right;"> 0.6</td>
<td style="text-align: right;"> 0.9</td>
<td style="text-align: right;"> 2.6</td>
</tr>
<tr>
<td> Sweden</td>
<td style="text-align: right;"> 1.1</td>
<td style="text-align: right;"> 0.9</td>
<td style="text-align: right;"> 0.6</td>
</tr>
<tr>
<td> Spain</td>
<td style="text-align: right;"> 1.4</td>
<td style="text-align: right;"> 0.9</td>
<td style="text-align: right;"> 1.6</td>
</tr>
<tr>
<td> Italy</td>
<td style="text-align: right;"> 0.2</td>
<td style="text-align: right;"> 0.8</td>
<td style="text-align: right;"> 2.4</td>
</tr>
<tr>
<td> South Africa</td>
<td style="text-align: right;"> 0.2</td>
<td style="text-align: right;"> 0.7</td>
<td style="text-align: right;"> 0.4</td>
</tr>
<tr>
<td> Denmark</td>
<td style="text-align: right;"> 1.2</td>
<td style="text-align: right;"> 0.5</td>
<td style="text-align: right;"> 0.4</td>
</tr>
</tbody>
</table>
<p><sup><em>Note: top 20 countries ranked by FTSE All-World index</em></sup></p>
<p>I took a few shortcuts:</p>
<ul>
<li>Where something was classified as North America I assumed that meant the US (sorry Canada!)</li>
<li>Where funds said &#8216;other&#8217; (<a href="/2018/07/rit-capital-partners-rcp/">RIT Capital Partners</a> for example) I allocated this across each country as per the FTSE All-World index.</li>
<li>Ditto for cash and fixed interest, so all the totals came to 100%.</li>
<li>I chose the FTSE All-World index as it&#8217;s what the Vanguard ETF is based on, killing two birds with one stone.</li>
</ul>
<p>The total of &#8216;other&#8217; and &#8216;cash/fixed interest&#8217; came to 11%, so I don&#8217;t think my <del>cheating</del> shortcuts changed the outcome to any great degree.</p>
<h2>Am I globally diversified?</h2>
<p>For a UK-based investor, I would say I am OK. My spending is primarily in pounds, with a fair amount on local services.</p>
<p>I&#8217;m not sure I had any real expectation as to what my UK weighting was. Had I been told 30% prior to this exercise, I think I would have been happy with that.</p>
<p>A couple of the sectoral bets I&#8217;ve placed the last year or two (small caps and renewables/infrastructure) have been UK-focused. I suspect this has bumped up my UK weighting for the low- to mid-20s to its current level.</p>
<p>Reassuringly, my UK excess seems reasonably well spread out across other countries. I&#8217;m generally lighter on Asian countries than European ones, so that might be something I bear in mind when it comes to future investment decisions. I&#8217;ve been toying with the idea of adding <a href="http://www.itinvestor.co.uk/2018/07/fundsmith-emerging-equities/">Fundsmith Emerging Equities</a>, so I may revisit that idea sooner rather than later.</p>
<p>There don&#8217;t seem to be many countries where I&#8217;m overweight. There are Sweden, Spain and Denmark in the above table, and Belgium, Finland and Norway in the long tail I haven&#8217;t included. Bizarrely, I have 1% in Guernsey, thanks mostly to <a href="http://www.itinvestor.co.uk/2018/09/the-caledonia-conundrum/">Caledonia Investments</a>.</p>
<h2>Missing pieces</h2>
<p>On a side note, it&#8217;s interesting to be reminded just how concentrated the global stock market indices are. The top 20 countries in the FTSE All-World account for an astonishing 96% of the total, with the US dominating of course.</p>
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<p>There are a couple of relatively large countries, economically, such as Argentina and Saudi Arabia that miss out entirely. And China, India, Brazil, Russia and Mexico are all underrepresented when compared to their GDP clout.</p>
<p>GDP figures shift a lot over time, as <a href="http://www.visualcapitalist.com/animation-the-worlds-10-largest-economies-by-gdp-1960-today/">this great infographic</a> from Visual Capitalist demonstrates. So even sticking with global trackers may skew you somewhat, because stock markets vary greatly as a proportion of the total economy from country to country.</p>
<h2>Home bias ain&#8217;t what it used to be</h2>
<p>There&#8217;s a school of thought that many of the companies we invest in, particularly the big consumer/technology stocks, are globally diversified themselves these days. Whether it&#8217;s Facebook or Diageo, a company&#8217;s home stock market doesn&#8217;t really tell the true story.</p>
<p>I think there&#8217;s some truth in this, although company share prices do seem to be affected by what&#8217;s happening in their home market.</p>
<p>What&#8217;s more, investing internationally tends to give you access to a much broader range of sectors than sticking with the FTSE. The UK market has a lot of old world stuff in there that has definitely acted as a drag on performance in the last two decades.</p>
<p>To me, therefore, it still makes sense to look abroad for the lion&#8217;s share of my portfolio.</p>
<h2>Rinse and repeat</h2>
<p>I think this whole exercise took about an hour from start to finish, including a bit of research on where to get the data. Now that I know where to go, it would probably take less than half that time.</p>
<p>But this doesn&#8217;t strike me as something that needs to be looked at too often. Every two or three years would probably suffice. Perhaps sooner if you rejigged your portfolio in any major way.</p>
<p>But it has also reinforced to me that despite the unnamed political shambles, the UK has a lot to be proud of economically. Fifth largest in GDP terms and third largest by market cap isn&#8217;t bad for a small group of islands with 66 million people clinging to them.</p>
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