Investors living in the U.S who want to invest in U.K.-based stocks have several options from which to choose. Two well-established methods of investing in international stocks are through mutual funds or American depositary receipts (ADRs). Two additional ways to invest in companies outside the country are through exchange-traded funds (ETFs) that own shares in British companies, or through direct purchase using online trading platforms that offer access to foreign markets.
A relatively easy way to invest in U.K. stocks is to invest in mutual funds that own U.K. equities. With mutual fund investing the shareholder does not own the stocks outright, but instead owns shares of a mutual fund that has the stocks in its holdings. Among the thousands of mutual funds offered in the U.S., the most difficult part may in sorting out which ones invest in the U.K. companies that interest you.
There are an ever-growing number of ETFs that can give you exposure to U.K. stocks. For example, there are dozens of ETFs that track the FTSE-100 Index, which is the benchmark for the London Stock Exchange. This index is the benchmark for the largest 100 U.K. companies, based on market capitalization, traded on the London Stock Exchange. An ETF is a basket of stocks that is similar to a mutual fund, except it trades throughout the day like a stock.
ADRs are certificates indicating stock ownership. Issued by U.S. banks to investors, an ADR may represent ownership of multiple shares. The actual stock shares are held by a bank in the country of issue. U.S. investors can trade ADRs in U.S. dollars, which provides instant awareness of actual prices and the currency exchange rate.
Online trading platforms continue to grow in number and sophistication with increasing opportunities to execute real-time trades of equities in markets around the world. For example, clients of Fidelity Investments have direct access to the U.K. markets, and have the option of trading in U.S. currency. After a trade is executed, Fidelity handles the currency exchange. Another option is the Interactive Brokers Group Inc., which provides investors access to brokers who have direct access to U.K. markets. Brokers can place trades for clients that not only include stocks, but a variety of investment products. Charles Schwab & Co., Inc. also offers account holders the option of trading on the London Stock Exchange through a broker.
- Charles Schwab: International Investing
- Fidelity: Fidelity Expands Its International Investing Platform With Launch of Direct Online Trading for Foreign Stocks and Currency Exchanges
- FTSE: FTSE Index Linked ETFs
- Interactive Brokers: About The Interactive Brokers Group
- U.S. Securities and Exchange Commission: International Investing
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