International Funds Have the Highest Concentration of Investments in European Companies.
The U.K.’s June 23 vote to leave the European Union surprised many investors, triggering one of the steepest two-day selloffs for global equities in history. While markets have since recovered much of those losses, volatility will likely persist as the short- and long-term impact of Brexit on the U.K. and the rest of Europe remains unclear. The uncertainty has driven government bond yields to record lows and the U.S. dollar to a three-decade high against the British pound.
Determining the potential immediate and long-term effects of Brexit on companies and economies is a fluid process. Issuing an Article 50 notification states Britain’s intention to leave the EU, but there is no firm date for this proclamation yet. After this announcement, it is expected to take at least two years for Britain and the EU to negotiate the terms of an exit, and much can change between now and then. As more specific plans are developed, the outlook should come more into focus.
In general, American Funds have some exposure to companies based in the U.K. and continental Europe. Most funds had less than 10% of total assets in U.K. holdings as of June 30, 2016, and less than 25% of assets in European (excluding the U.K.) investments. As one would expect, U.K. and European investments are more prominent in international-centric funds such as EuroPacific Growth Fund®, International Growth and Income Fund℠ and Capital World Bond Fund®.
One important distinction to make is that, while many corporations may be headquartered in the U.K. or elsewhere in Europe, their global footprints are often much broader. More than 70% of revenue for companies in the MSCI U.K. Index comes from outside the U.K. For companies represented in the MSCI Europe Index, more than 50% of revenue comes from outside Europe1. Expanding consumer marketplaces and the broadening global reach of companies emphasize the need for a long-term, research-driven approach to investing in order to be properly positioned to navigate volatile financial markets.
U.K. & Europe ex U.K. Exposure Across Funds & Indices2