Why it pays to invest globally

If you want to invest in technology shares, you need to be in the US stockmarket; for oil companies that still have substantial reserves, you need to look at places such as Russia and Brazil, or Canada for speculative oil explorers.

For engineering expertise Germany is likely to fit the bill while to tap into the world's fastest-growing companies your gaze should be turning to Asia and Africa.

It's not surprising then that a growing number of investors are realising that it can pay to go global. Among funds, the Investment Management Association's statistics show that around 46% of equity investments were in UK funds in 2013, down from 53% five years ago. Most recent fund launches have had an international flavour. There is also growing interest in directly buying overseas shares.

Saxo Bank, which has a 20-year history with global trading platforms, says that overall, transactions by its UK clients have grown by 182% in the past two years but much of that has been through overseas shares: their US trades have risen by 359% and now account for almost 40% of portfolios, up from 23% in January 2011, while the UK share of total positions has declined from 35 to 28%. The euro crisis has made European shares less popular - their proportion has fallen from 34 to 18% - but Sweden, Switzerland, Canada and South Africa have had spectacular growth; the latter has risen by 15,000%, up from negligible amounts two years ago.

Buy large firms with good income

Roger Tabakin from London considers himself a long-term investor rather than a trader, and is also looking for income. "Certain overseas equity investments give a good dividend yield that is not necessarily available on a UK-listed company," he says.

Among the stocks in his portfolio are Royal Bank of Canada, Telstra, the Australian mobile phone company, and US oil giant Exxon Mobil and he is currently evaluating Nestlé as a potential purchase. He is mainly interested in large companies that produce a good level of income.

Tabakin deals through TD Waterhouse and finds the process straightforward, with the electronic trading service showing quotes that already take account of foreign exchange costs. As a long-term holder, he is used to having to grapple with the requirement to have a separate schedule for each holding when submitting his tax return. "It is a bit cumbersome, but I manage to do it."

He estimates that around a tenth of his portfolio is in international equities.

He also holds stocks through investment funds, for example to gain access to emerging markets where he does not invest directly due to "concern about the level of accuracy of their accounts".

Last year's statistics show growing interest in international equities. Saxo's UK clients traded in around 6,800 shares in 2012, 43% of them from the US while just 17% were UK, 11% Europe and a similar percentage Canadian and 3% from Hong Kong.

Access to global markets varies from platform to platform. Some offer only UK stocks, others a restricted menu. Halifax, for example, offers access to only six markets, including the big European exchanges and the US while TD Waterhouse adds Sweden, Switzerland, Hong Kong, Singapore, Australia and Canada to that list; and Barclays Stockbrokers, the UK's largest execution-only stockbroker, has 26 major exchanges on its platform. NatWest Stockbrokers offers 17 countries online and a further two by telephone only, while Saxo Bank provides access to 18,000 shares across 30 exchanges.

Hargreaves Lansdown provides access to countries such as Argentina and Panama as well as the more obvious ones among its 37 countries, but few of the other platforms give direct access to the more esoteric markets in the Far East or Latin America - although Saxo Bank is looking at adding Brazil. For exposure to these, investors may need to trade at full-service brokers such as Killik & Co, or Charles Stanley, offering telephone-based execution-only and traditional dealing services.

Compare prices before you commit

Fees for trading vary widely and it is worth comparing prices before you decide which service to use. Halifax charges the same fee for international shares - £11.95 per trade - as it does for UK stocks, and includes overseas markets in its monthly reduced-fee "commission countdown" promotions. At NatWest charges vary depending on the frequency of trading and whether deals are done by phone or online. TD Waterhouse charges £17.50, which is £5 more than UK trades, while Barclays charges £17.95 for Singapore and Hong Kong and £12.95 elsewhere, with cheaper rates for more active traders. Saxo's rates vary according to the stockmarket being traded - in South Africa, it is 0.25%, in the US 2 cents a share.

That compares with Killik's 2% of the value of the trade for the first £25,000 and 0.5% thereafter, with a minimum of £70, and Charles Stanley's 1.5% on the first £5,000, 1% on the next £5,000 and 0.375% above £10,000, with a £50 minimum.

Some of these companies will also charge an inactivity fee for accounts where there is no trading for a set period, usually three months, so check the small print carefully before signing up with any platform.

Daniel Aitkenhead, head of communications at Killik, points out that it offers advice and research to help investors reach their decisions. He adds that advisory-based services can offer other advantages in reducing trading spreads and foreign exchange services. "We trade manually so, if you want to deal in smaller UK stocks or international stocks, we can often offer significantly tighter spreads."

Foreign equities

Foreign equity investors also have to take account of foreign exchange, both when they make the initial purchase or sale and of its effect on the value of the investment. Halifax charges a 1% foreign exchange fee; at NatWest and TD Waterhouse fees range from 0.25 to 2%, although investors do not have to use them for foreign exchange, and Barclays charges 1.5%, again reduced for more frequent trades, while Killik charges 0.5% on deals below £30,000 and 0.35% above that.

Some brokers - including Saxo and TD Waterhouse - give investors the option of operating a dealing account in a foreign currency, so there will be no transactional foreign exchange fees, or investors can opt to trade in sterling, with quotes showing the final cost including commission and forex charges. Most international markets do not charge stamp duty - Hong Kong is the exception, with a 0.1% levy - although a so-called Tobin tax on share transactions is being considered across Europe and has already been introduced in France at a rate of 0.2%. Singapore deals incur a 0.4% clearing fee while Hong Kong trades also carry a transaction levy of 0.003% and a trading fee of 0.005%.

Currencies can move sharply - as sterling has done this year - which can turn a local currency profit into a loss when the funds are translated back into sterling. That adds a further level of risk on top of the existing risks associated with trading in any shares - that prices can rise and fall sharply based on factors ranging from investor sentiment to competitors' behaviour, management changes or government intervention. Dividends will also be paid in foreign currencies, although a growing number of UK companies already declare dividends in US dollars.

Tax treatment of dividend payments can also be an issue for those who intend to hold their overseas stocks for some time. If the country concerned has a double tax treaty with the UK, then investors should be able to claim a UK tax credit against any tax deducted at source but reporting requirements can be onerous - holders of US stocks, for example, have to complete a W-8 form and UK taxpayers have to complete a separate schedule for each foreign holding with their tax return. Anyone considering buying overseas shares should consider tax and exchange issues before taking the plunge.

US stocks

The most popular international stocks are not surprising: a recent survey by Barclays Stockbrokers puts Apple and Facebook in first and second place. Others in the list include Bank of America, Siemens and Nokia. The US and Canada were the favoured markets.

That underlines one of the key attractions of international trading: to get access to market-leading companies. The UK's technology sector is relatively small and household internet names such as Amazon, Google and Apple are all quoted in the US so anyone seeking access to their growth prospects - and Apple and Amazon have both enjoyed share price growth of more than 300% in the past five years - has to look overseas.

But buying international shares does add extra layers of risk: those of a more nervous disposition or with relatively small portfolios may prefer to get their exposure through a global or regional fund, where the units will be priced in sterling and their manager is charged with worrying about foreign exchange, corporate governance and political risk.

Damian Stansfield, managing director of Halifax Share Dealing, reminds us that the UK stockmarket is actually very international, with US and UK exchanges hosting many international businesses. "Lots of companies [from emerging markets] are also listed in the UK and the US, so you can access them through there."