UK Tracker Indices not Wholly Representative of UK Economy

Came across this fascinating article titled "Buying British not what it seems" by Sylvia Morris that discusses how the presence of many foreign companies on the London Stock Exchange and the foreign operations of many UK based companies (even the big food retailer Tesco!) means that buying the FTSE 100 or the All Share Index entails a very significant foreign exposure. The All-Share is apparently not quite as foreign as the 100 Index but in either case one is more or less buying an internationally diversified holding. Hmmm, not sure what to do about this so that the UK holding better represents the UK economy as the more purely domestic funds in the UK are high-fee actively managed funds.

The progress of globalisation is no doubt having this growing effect in all markets and on all market indices. Might it be that the diversification benefits of international investing are becoming less and less so? Perhaps diversification on the basis of non-correlation of asset classes/holdings would be better pursued through asset classes based on something like industry sectors?