Foreign FTSE 100

Allocating to the good old FTSE 100 may no longer give your portfolio a slice of British business, as international exposure and a heavy bias to commodities have skewed this former lodestone of UK plc.

With commodities giant Glencore barging into the index this summer, exposure to resource stocks, such as mining and oil and gas firms, has risen to more than a third of the entire index, with names like Anglo American, BG Group, BHP Billiton, BP, Rio Tinto and Royal Dutch Shell figuring prominently.

A British name doesn’t mean a British business…

And don’t let the English overtones of the names cloud your vision – with the exception of North Sea oil, few resources are carved out of British geography. Investing in energy stocks means exposure to the Gulf region, Latin America and Siberia, with major growth areas in Venezuela and Kazakhstan.

Metals extraction, too, necessitates exposure mostly to emerging markets – for example, the biggest copper producer is Chile, for iron, it is China and, when it comes to gold, China is also number one, having overtaken gold-producing stalwarts like Australia and South Africa.

…and neither does a UK listing

The confusion stems from the criteria needed to become an index member – firms don’t have to be based in the UK, they just have to have their shares traded here. And the gravitas of a UK listing isn’t the only benefit enticing them to do just that. Index-matching funds will be mandated to allocate money to these stocks once they are FTSE entrenched, guaranteeing a base level of demand for the shares unless their price drops sharply.

The result is that those keen to avoid emerging markets exposure can’t look to the FTSE to provide this, and those gauging their exposure could be very surprised if they drill below geographic listing to actual operations.

Investing = international

While the FTSE 100 may be an extreme example, the global nature of modern business means no company can be immune from international business developments. FTSE 100 powerhouses Marks & Spencer and Sainsbury’s may sell mostly to British buyers, but much of their stock comes from overseas. Unless you are prepared to hide your money away in government bonds and pounds, and accept the pitiful returns on offer, today’s savvy savers know that investing means international exposure.