A friend has passed me a re-print of an article in the Economist asking this question. I can share it on this link, you can read the original if you have a sub from here and you can read the article itself from slide share below.

The article sees Rachel Reeves statement on July 8th that British pension funds should invest British as part of a global trend, including economies as diverse as Canada and Italy, to direct pension funds to invest domestically. The worry is the incontrovertible truth that American tech stocks have driven returns over the past five years to a point where British companies can seek private capital and/or list in America and get global rather than local reward. Indeed many companies that would have listed on AIM are now listed on the Nasdaq.

Against the prevailing wisdom that our pension fund money will heal the wounds of a bleeding stock-market is the experience of economies such as Japan and Korea that imposed controls on pensions requiring them to invest heavily in its country’s corporate debt, to the detriment of those who are now retiring.

The arguments for short term regeneration have to be set against those of long-term returns and clearly Governments have a responsibility to future generations and needs balance them against reflating the local present economy with their money.

Nevertheless, I think there are strong  arguments for UK investment that are more fundamental than political. The first is about the currency I expect to receive my pension.

In the past ten years we have seen two events that have led to currency problems relating to overseas investments, both caused huge dispersion in pension fund returns. Hedges proved costly, unhedged funds that took currency risk as part of a long term investment strategy won. I dislike the idea that my pension pot is subject to currency fluctuations about which I have no control. I would rather my UK pension was invested in sterling denominated stocks or at least more of it was!

The second is that large parts of the UK market are undervalued for technical rather than fundamental reasons. In particular, the FTSE 250 , heavily invested in investment companies, is unloved because of the way it presents its constituents to market. Ros Altmann has campaigned to get this change, little got done,  we hope that a new Government can and will do better. Much of the under-performance of UK indices has been down to the down-valuation of stocks and once technical issues are resolved, there is expected to be short-term growth.

Admittedly, both these arguments are tactical and tinged with the home-bias that is inevitable from a saver who has spent a lifetime working in Britain. My money is mostly invested in global equities where the allocation to UK equities is by the market capitalisation of the UK relative to the UK. This list of investable companies is taken from the World Bank.

The world equity markets are so dominated by America that the strategy of investing around the world by market weights is consigning my investment in the UK to a “bit-part”. This despite the UK still being one of the top ten markets in the world.

Herein the dilemma for consumers and Governments alike. We want inward investment into the UK from overseas investors (including countries that like us are considering pulling up the drawbridge by intervening in investment strategies).

But we risk by demanding a retention of our money in our economy, further isolating ourselves from the rest of the world. This is a fundamental argument against pension nationalism and one the Economist considers trumps the local considerations of UK savers and the short-term needs of a cash-strapped Government.

My correspondent has no truck with localism and sent me the article for a reason, you can guess him by reading recent articles on this blog.

As with Brexit, I suspect that there is no consensus here, but that people on either side of the argument have strong views. It is unlike me to sit on the fence but I find myself genuinely undecided about whether I want my money invested with a home bias or not.

I keep the question in this blog’s heading open. I hope we can cover this issue at this morning’s PlayPen coffee morning as my ears are open for more argument.