But protectionism is not the answer to years of underwhelming returns
investors, patriotism is costly. Sticking money in domestically listed equities over the past decade has meant total shareholder returns two-thirds lower than investing in a global index that strips out Britain. It should be no great surprise, then, that British investors exhibit less “home bias”, an over-allocation to domestic equities, than most rich-world peers . A decent financial adviser would call this shrewd. Geographic diversification is core to good investing.
Cajoling domestic investors to buy British is not the remedy for underperforming markets, however. British households invest only 11% of their financial assets in stocks, compared with 23% in France and 36% in America. Such habits won’t change without sustained strong returns, and insufficient capital is not to blame for those.250.
The situation in private markets is somewhat different. Although there is plenty of money in Britain for early-stage venture capital and mature investments like infrastructure,Most of it comes from abroad; highly fragmented British pension funds generally lack the scale or sophistication to invest in unlisted assets. Plans to consolidate local-government pension schemes are a good start.
But it is worth keeping some perspective. Britain’s capital markets are highly internationalised, both for private and public assets. Any companies that are being shunned by sophisticated global investors are unlikely to offer British investors spectacular returns. Holding more unlisted equities would not make a vast difference to investors’ portfolios.
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