In the past, I used US data as well as UK data for looking at DVRs and their efficiency levels. That stopped after I lost access to US data, which I have since regained. However, as smoothing has never been common in the US, I decided that there was little point in looking at US DVRs. However, the data are quite interesting from another angle.

Recently, HMG were trying to gain the power to force UK pension scheme trustees to invest in UK companies rather than elsewhere which appears to have been resisted by Lords. In fact, that seems to affect DC schemes alone but I suspect that it would eventually be extended to DB schemes where most of the money is. While I think such a power is inappropriate, I thought I’d look at what would have happened, comparing £1,000 either invested in UK equities (FTSE All Share Index) or invested in US equities (S&P 500 Index) and repatriated to UK.

Henry Tapper kindly hosted a very preliminary version of what follows and I have now included long Government bonds. One of the comments made was that overseas investment has often been more beneficial than suggested here. That, I think, would have been the case where the investors were more active than passive. Using indices is certainly quite different and I accept that the results may not resemble actual achievements by good (or lucky) investors. However, indices are all I can access and overseas investment won’t always be beneficial.
 

The periods considered are 10 years through 15 years between end 1971 (earliest available) until end 2025. No allowance has been made for investment expenses or currency exchange fees (exchange rates taken from St Louis Fed). Nor have I even tried to allow for the impacts of exchange control and the “dollar premium” before 1979, which would have lowered the returns from investing overseas further. The exchange rates used are charted here, as UK £ to US $.

This section starts with a simple example, following which I shall look at returns achieved, risk premia and what I’ve called “parity exchange rate”.