PEPs, by contrast, were largely limited to European Union-listed investments. As a consequence, most PEP holders - who are likely to maintain their tax-free investment habit using stocks-and-shares ISAs - are holding portfolios heavily skewed towards those areas.
That has not been a huge disadvantage recently. Over the last three years, according to Moneyfacts, the average unit trust in the continental sector rose in value by 54 per cent, and the average UK growth unit trust by 50 per cent.
However, PEP rules have left most investors with little exposure to North America, which accounts for half the world's stock market value - including around 60 of the biggest 100 multinationals.
The world's mightiest corporations are global empires. McDonald's, for example, sells hamburgers in 103 countries, including many emerging markets. So the fortunes of companies like McDonald's, IBM and AT&T depend not only on the buying power of Americans but that of people in markets from Egypt to Ecuador. And their influence there is considerable. Jonathan Fry, of Premier Asset Management, claims that two of the three most widely recognised words in the world are "Coke" and "Coca-Cola".
When it comes to investment performance, in other words, the nationality of a giant becomes less important than what's going on in all the countries where it is earning income. But that global penetration is not reflected in the classification of a company listed on the UK or US stock exchange and so officially "British" or "American".
Accountancy firm Bacon & Woodrow is working with FT-SE International to produce a new index composed exclusively of the world's largest multinationals.
This would be used as a benchmark for actively managed pension and retail funds. It could also provide the basis for tracker funds that expose investors to global markets via familiar blue-chip names.
Sally Bridgeland at Bacon & Woodrow explains that a multinational benchmark would enable investors to see clearly what kind of geographical spread they were buying into. By comparing like with like, it would also get round the problem of a domestic index (the FT-SE 100, for example) dominated by a handful of giants.
What are the attractions of investing in very large companies? Apart from the global spread, multinationals usually have diverse interests across a range of economic sectors. And, as Mr Fry says, they are disproportionately profitable: in a 1997 Compustat analysis of 5,000 US companies by size, the 3,800 groups worth up to $1bn generated 10 per cent of total profits, while the 100 "super-caps" worth over $2bn generated 44 per cent.
Bacon & Woodrow's multinational index is not yet functioning. However, Premier has adopted a "quasi-index fund" strategy for its Global 100 fund, which tracks the performance of the world's 100 largest companies by market capitalisation. The contrast between the geographical location of the fund's portfolio and the source of its global earnings is illuminating. More than two thirds of the portfolio, including eight of the top 10 companies, is listed in the US, with 20 per cent in Europe and a further 8 per cent in the UK. But less than 40 per cent of the global earnings is generated in the US: 32 per cent comes from Europe and 11 per cent each from Japan and the rest of the world.
Recent performance is reassuring. The Global 100 fund is dominating the Moneyfacts international equity income sector tables and have put on 32 per cent in value over the six months to 6 April, according to Standard & Poor's Micropal.
But Jason Hollands at BESt Investments warns: "The Global 100 concept is interesting, but there is a widely held opinion that valuations of the largest-cap stocks both here and in the US may be stretched."
Another potential drawback with the passive multinational "tracker" is that there is a sectoral bias towards industries such as telecoms and oil; the impact of any correction in those industries would be painful for a fund focusing on the global giants.
There are two actively managed routes into a broader international blue- chip portfolio. It is possible to hold several funds in one ISA, so you could choose one of the management houses with a solid reputation across a wide geographical spread, such as Gartmore or Fidelity (though no manager will perform equally strongly across the board).
Alternatively, you could consider international growth or equity income funds.
"Managers do have more freedom to diversify in the international sector, but there is a tendency for these funds to be used as something of a training ground for less experienced managers when it comes to individual stock selection," warns Mr Hollands, "so they have not generally performed very spectacularly."
Look, too, at the international general sector of investment trusts, which can also be held in an ISA and are markedly cheaper than unit trusts.
There is usually no initial charge for an investment trust, compared with an upfront fee of up to 5 per cent for unit trusts. Thereafter, management fees for investment trusts are around 0.5 per cent to 0.75 per cent annually, whereas unit trusts cost up to 1.5 per cent. The Premier Global 100 fund costs 5 per cent initially and 1.5 per cent annually thereafter, which is dear in comparison with investment trusts.
A number of international general investment trusts have performed strongly, including Alliance Trust (which offers a CAT-marked ISA), Tribune and Witan. Foreign & Colonial focuses on blue-chip stocks and has a geographically diverse portfolio, including 24 per cent in North America. F&C has been through difficult times but there has been a recent improvement, with growth of 23 per cent over the six months to the end of March, according to Moneyfacts.
However you achieve it, a truly international spread helps to lower risk while giving exposure to fast-moving markets and companies.
"We have always been advocates of diversification by investing internationally," says Mr Hollands, "and America is where investors are now underweight. We'd suggest holding no more than 50 per cent of a portfolio in UK funds, with up to 15 per cent in the US and the same in the Far East."Reuse content