With the growth of platforms in recent years and the general reduction in the costs of investing, it has never been easier for private investors to access the global stock market. However, despite the myriad of options, UK investors are continuing to maintain an overexposure to British companies. 
A home bias is perfectly understandable, due to the familiarity people may have with home grown firms, but this adds significant level of risk and limits that could be very costly to them over the long term.
Even the largest single nation economy can lack diversification and the UK market suffers from a relatively extreme level of concentration. Over 53 per cent of the FTSE 100 is in financials, consumer goods and oil & gas.[ii]
Given the volatility of the latter, and the current pressure on commodity prices, it is clear how an overexposure to the UK could result in wide swings in value. Our investment approach aims to deliver a consistent, sustainable, growing income for our shareholders.
A global view is particularly important if you are investing for income, like those in retirement. The UK market is dependent on a tiny number of companies to maintain and grow their dividends.
Believe it or not, the top 20 dividend paying stocks in the UK account for 64 per cent of the total dividends paid by all companies in the FTSE All Share. This compares to just 18 per cent in the MSCI All Country World Index (ACWI).[iii]
This means that if something goes wrong with one of those UK giants it could have an extremely adverse effect on an investor’s income stream. This is the predicament currently facing BP and Royal Dutch Shell, two of the UK’s giants. Both pay an attractive dividend, but the current level is not covered by free cash flow. This means that they face the real prospect of cutting the dividend.
By investing globally, we can avoid the risks inherent in single country exposure, but it also opens up the investible universe and allows us to access some of the best companies in the world, regardless of sector or location.
Moreover, as we invest in companies based on their fundamentals, we are not at the mercy of the vagaries of individual market or sectoral moves. This, combined with our global approach, provides investors with the best chance of protecting and growing their capital.
Look at the giants of the technology sector and some of the biggest growth stories in recent times: Apple, Facebook, Tencent, Samsung and Alibaba to name just a few. The unfortunate fact is that none of them are UK companies.
In fact, the recent sale of ARM holdings to Japanese company means that there are almost no significant technology companies left in the UK. The result is that investors exclusively in UK funds will have had no chance to access the extraordinary growth of these companies, and their portfolio will have lagged accordingly.
The astonishing outperformance of global equities also masks another limitation of investing purely in one country: the element of political risk.
While nearly every country in the world may have an element of political uncertainty or surprise (president Trump is a case in point), Brexit looks like it could overshadow the UK for years to come.
We still have little idea of what a post-Brexit UK will look like and this uncertainty has very real consequences for businesses and the economy.
Weak sterling will feed through to high street prices, with rising inflation fuelling demand for wage rises. The fiscal deficit will deteriorate as the UK economy slows, of which there has been signs in recent months.
While the fall in sterling has been helpful for companies which derive a large portion of their revenues from overseas, Brexit still holds the prospect of seriously exacerbating the UK’s trade deficit. A global portfolio provides access to the best companies in the world, while minimising individual country risk.
Even if you pick the best fund manager in the world to manage a UK-only portfolio, the additional risks, constraints and flaws will be present - risks that are mitigated by widening the investment remit - and a global portfolio is the widest of all.
Mark Whitehead is portfolio manager of Securities Trust of Scotland. The views expressed above are his own and should not be taken as investment advice.