The United Kingdom is made up of England, Scotland, Wales and Northern Ireland. While Scotland has its own stock exchange and Wales is considering whether it should have its own, the London Stock Exchange is by far the main market for securities in the U.K. Well over 2,000 companies trade on the LSE. Along with the New York Stock Exchange and Nasdaq, it’s among the top 10 major stock exchanges in the world.
A US investor is legally allowed to purchase UK stocks. In fact, some UK stocks are even available for purchase through US brokerage firms.
Why Buy UK Stocks
Reasons American investors may want to buy U.K. stocks include portfolio diversification and the potential to cash in on the growth of particular U.K. companies. U.K. stocks may move in different directions at different times than U.S. stocks. The same factors that affect U.S. stock prices affect U.K. stock prices, but not necessarily simultaneously.
Factors that influence all stock prices are inflation or deflation, a government’s fiscal and monetary policies, technology and corporate or government performance statistics. Additionally, events like wars and natural disasters affect a country’s stock prices.
If, for example, investors’ skepticism about the U.S. economy is causing U.S. stock prices to drop, U.K. stock prices may be holding steady or going up at the same time. So including both domestic and foreign securities in your portfolio may reduce your overall exposure to risk.
How to Buy UK Stocks
U.S. investors can buy U.K. stocks through some U.S. brokerage firms. However, not all U.S. brokerage firms that deal in U.K. stocks have access to all of them. If you have a specific U.K. stock in mind, you may have to shop around a little to find a broker that can get it for you. Alternatively, you could open a brokerage account in the U.K. or consider investing indirectly in U.K. stocks via mutual funds or exchange-traded funds.
U.S. investors can buy U.K. stocks indirectly by investing in U.S.-registered mutual funds that include U.K. stocks. Buying U.K. stocks this way can reduce some of the risk associated with investing internationally because mutual funds, like a good portfolio, are made up of diverse securities. Further, mutual funds are subject to U.S. Securities and Exchange Commission regulations designed to protect investors.
Another way U.S. investors can buy U.K. stocks is by purchasing exchange-traded funds. Like a mutual fund, an ETF is a collection of different securities. But unlike mutual funds, ETFs are traded like stocks. They can be bought and sold all day as long as the market is open. Mutual funds are traded just once a day right after the markets in New York close at 4 p.m. Eastern Time. This means ETFs have higher liquidity than mutual funds.
American depository receipts are another option. Most U.K. stocks that are traded in the U.S. are traded as ADRs. Each ADR represents a specific fraction, or one or more shares of the foreign stock. ADR prices usually correspond to the price of the stock in that stock’s home market.
US-traded UK Stocks
Some U.K. companies list their stocks directly on the New York Stock Exchange or Nasdaq. These stocks can be purchased directly through U.S. brokers. Nasdaq’s website has a handy filter that allows you to search for U.K. stocks listed with them and on the NYSE.
International investing has its advantages. Issues impacting U.K. stock prices may not be affecting U.S. stock prices. But globalization means that markets throughout the world are becoming more intertwined and interdependent every day. Before you buy, it’s a good idea to research U.K. companies the same as you would U.S. companies.
LeDona Withaar has over 20 years’ experience as a securities industry professional and finance manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a securities compliance specialist at Capital Group. She has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She has done volunteer work in corporate development for nonprofit organizations such as the Boston Symphony Orchestra. She currently owns and operates her own small business in addition to writing for business and financial publications such as Budgeting the Nest, Zacks and PocketSense.