Ask ii...what are the pros and cons of investing in a US company?

1st July 2022 14:19

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Ali asks: I’m interested in Berkshire Hathaway B Shares. What are the pros and cons of UK citizens investing in a US company such as Berkshire?

Keith Bowman, Equity Analyst, interactive investor, says: the first big advantage of investing in US shares is that it vastly increases the number of companies you have to choose from. Some of the biggest companies in the world, household names such as Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) Microsoft (NASDAQ:MSFT), Ford (NYSE:F), Chevron (NYSE:CVX) and Tesla (NASDAQ:TSLA), become potential investment opportunities.

Buying shares in US companies can also help improve diversification of your investment portfolio. Investors can be prone to home bias, where they stick to investments in their own region. This risks missing out on trends that are happening in overseas markets, like we saw with the tech rally from the financial crisis low in 2009 to last year’s peak. In that time, the Nasdaq Composite rose over 1,000%. During the same period, the FTSE All-Share index was up less than 150%, excluding dividends.

Owning US companies can also give investors exposure to industries not so widely available in the UK, such as technology companies or electric vehicle makers. The US is awash with them.

In addition, and because a lot of large European and Asian businesses also list their shares on the US markets, investors may find the US provides a convenient route into those companies too.

Like UK companies, US shares can also be purchased in tax-efficient wrappers such as an ISA or SIPP.

Before you can start trading US shares, you’ll need to complete a W-8BEN form, which is required by the US authorities to show which country you pay tax in. W-8BEN forms remain valid for three years, although you don’t need one if you’re only trading through a SIPP wrapper.

You can find the form and instructions on how to fill it in here.

There are some other issues to consider.

You are trading in a different currency, so the value of US shares in sterling terms can be affected by movements in the exchange rate between the dollar and British pound. When the pound is lower against the dollar, you stand to gain if you sell your US shares and convert the proceeds back to sterling. Obviously, the reverse is true.

US trading hours also vary from the UK. The New York Stock Exchange is open between 2.30pm and 9pm GMT. Online trades can only be executed during these hours.

US company shares can also be much pricier per share than the UK shares are. Berkshire Hathaway Inc Class B (NYSE:BRK.B) shares traded at $273 each as at the close on 30 June2022. Nearly half of all UK FTSE 100 companies trade at under £10 per share.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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