Fuller's England

02/13/2004 12:00 am EST


David Fuller

Global Strategist and Producer, Fullermoney

"Oscar Wilde once quipped that the US and the United Kingdom are one country separated by a common language," says David Fuller, editor of FullerMoney. Here, the global advisor makes his case for investing in his hometown, the United Kingdom.

"The UK has the longest-running parliamentary democracy in the world, and it is one of the world's most important financial centers for equities, currencies, and commodities. It is truly an international financial center. In addition, the UK has the third largest stock market in terms of capitalization, after the US and Japan. Of the world's 20 largest companies by market capitalization, 16 are American and four are British. I'd like to profile those for you, to highlight some of the merits of investing in the United Kingdom:

"You have probably all heard of Vodafone (VOD NYSE), which trades as an ADR in the US. It has a dividend yield of 1.25%. To get an idea of its size, the nearest equivalent in market cap would be Cisco. The 11th largest firm on the top 20 list is petroleum firm, BP (BP NYSE), which again is traded in the US as an ADR. It has a big dividend yield of 3.59% and a conservative multiple relative to the energy sector. One of the interesting things about the UK stock market is that while it does tend to track the US market, it generally trades at a price-to-earnings multiple of between a half and 2/3rds of the multiples seen at the same time in the US. And the dividend yields run higher, particularly for the large companies. For example, the S&P 500 index has a dividend yield of 1.6%, whereas the FTSE 100 has a dividend yield of 3.3%. The UK market is generally thought to be a more defensive market by investors.

"The next big UK company- 12th among the 20th largest market caps in the world- is HSBC (HBC NYSE). This was formerly known as Hong Kong & Shanghai Bank, before the British colony was handed back to the Chinese. The firm moved its headquarters back to London, where it had a major presence. The company, of course, also has a major presence in the United States. Its market cap is roughly equivalent to IBM. And last on my list of companies is the world's 15th largest market cap- GlaxoSmithKline (GSK NYSE), which also trades in an ADR on the New York exchange. The stock has a yield of 3.31% and a p/e multiple of 14. The closest equivalent in market cap is Berkshire Hathaway.

"And while London has the third largest equity capital base in the world, it is still even larger in currencies. London does between 50% and 60% of all global Forex trades-all international currency trades. In fact, London trades more currency than New York and Tokyo combined. Commodities are also very important, and we have a boom underway in the global metal markets. London also has launched gold bullion securities- this is paper gold. It was launched by the International Gold Council and will hopefully be available in America before long. It is listed in London and is a convenient way to own gold, without the hassle of going to a bullion broker, buying, storing, and insurance costs. I like this and have already put a slug of this in my own pension fund and tend to add to this position whenever there is a dip in the price of gold, as we've seen recently."

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