So you think you can 'buy British' on the markets?

Many 'UK investments' rely to some extent on profits made abroad. Should that put you off?

From farming to manufacturing and tourism to cars, the rallying call "buy British" has resounded down the years.

It has also been a mantra in the fund management industry, but for a rather different reason.

First-time investors keen to put some money into the stock market are often told by independent financial advisers (IFAs) to start off with British companies - those household names they have heard of, or bought products from, or whose fortunes they can easily follow in the newspapers or online. And, of course, their investment decisions will be aided by some know-ledge of how the UK economy is performing.

Their money will usually end up in an investment "tracker" fund that follows the fortunes of the FTSE 100, the index of the UK's big blue-chip companies.

Alternatively, for those new investors prepared to take more of a chance with their money in pursuit of higher rewards, the cash may be placed in an "equity income" fund which hunts down those UK companies paying juicy dividends.

However, individual investors buying into a fund that spreads cash across UK companies may not be staying as close to home as they think. Thanks to the rise of multinational businesses with offices around the globe, companies listed on the FTSE 100 today have a huge "footprint", or presence, overseas. Indeed, only 38 per cent of profits from the top 100 blue chips actually stems from the UK, according to sales data compiled by Schroders and Citigroup.

For example, the research shows, Royal Bank of Scotland now earns less than a third (31 per cent) of its profits within the UK. At HSBC, which started in the Far East but is now Britain's second-largest company, only a fifth of profits come from the UK. Meanwhile, BT has expanded into 170 countries since demerging from the Post Office in 1984 and now earns only 56 per cent of its revenue in Britain.

Overall, only 12 of the FTSE 100 stocks are 100 per cent British, the research says. These include the likes of J Sainsbury, Alliance & Leicester and British Energy Group.

And, remarkably, there is now a FTSE 100 group that doesn't earn a single penny within the UK.

Kazakhmys, a newly floated company, is the world's 10th-largest copper producer and refiner but has no real activities within the UK; its listing here is down to a need to raise money on the markets, and to its hunt for prestige.

For the individual who has used his £7,000 individual savings account (ISA) tax-free wrapper to invest in a UK company fund, this international flavour might matter. What about currency risk, for example, or overseas events affecting fund performance?

No need to panic, says Anna Bowes of IFA AWD Chase de Vere. "If you're invested in a UK fund that is dominated by 'large cap' companies, you're bound to have a large exposure to markets well beyond these shores." It's less important, she explains, that a fund invests in the UK than that it backs "good-quality companies in their own right".

Ms Bowes adds: "FTSE 100 companies have to adapt to international market conditions. They accept the risk of going global to compete with the biggest and best the world can offer.

"Even though you may consider currency fluctuations a risk, most large companies have taken precautions and hedge themselves back to sterling, enabling them to declare their dividends in sterling."

In most cases, therefore, British investors should not fall victim to major currency fluctuations. But the international dimension does matter in other respects.

Meera Patel, of IFA Hargreaves Lansdown, warns that investors can be affected if they have taken the time to build up a collection of equity ISAs based on different geographical locations.

"If you have carefully decided on an appropriate 'asset allocation' [the proportion of an overall investment portfolio that is dedicated to different stock markets] to suit your own risk profile, international exposure within a UK fund may put this out of kilter," she points out.

It is worth noting, as well, that on top of your fund earning much of its income from the profits made by British businesses in other countries, the manager could be deliberately choosing companies that are based in other countries.

This is because investment rules allow UK company funds to hold 20 per cent of their portfolio's value in overseas shares - and some managers take advantage of this if they see opportunities to make big returns elsewhere to bolster your fund.

For example, explains Ms Patel, UK stocks have generated strong dividends in the past few years, and this in turn has contributed to strong performances among UK income funds.

But now continental European companies are offering greater potential, she adds, and so managers are using the 20 per cent rule to try to benefit. "Overall, it can't be a bad thing," says Ms Patel.

If you're not sure what your chosen fund invests in, always "look under the bonnet and find out [exactly] what type of companies are held", says Richard Philbin of fund manager F&C. "Such information is usually available on 'fact sheets' found on the pro- vider's website."