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By the end of this month, the UK will finalize whether it will remain in or leave the European Union (EU). This possibility is now widely known as ‘Brexit.’ In a plebiscite on June 23, votes in favor or against of Brexit will be requested. This will decide the fate of the nation in the future.
Recently, several polls showed that though most of the voters are speculated to be in favor of Brexit, a significant number of them are still unsure. These voters may play an important role in the final call. Against this backdrop, mutual funds that have significant exposure to securities issued in the UK will remain on investors’ radar in the coming months.
Will Brexit Happen?
While five out of the eight most recently published surveys showed that percentage of people supporting Brexit exceeded those who are against it, only two indicated that Brexit may not happen. One opinion poll was tied. There remains a sizeable contingent of undecided voters. This portion of the population will swing the Brexit vote. (Read: Welcome to the June Glooms: Odds on Brexit?)
An ICM poll of 1,741 people taken from June 3–5 showed 48% would vote for an exit, up from 47% a week earlier, while 43% would opt to stay, down 1% from a week earlier. A YouGov poll of 3,495 people on June 1–3 showed 45% would opt to leave the EU, up from 40% in a comparable poll a month earlier, while 41% would opt to stay, down from 42%. Separately, these polls showed that around 11% of voters were still undecided, down 2% from a month earlier.
Arguments in Favor of Brexit
Issues that were mostly discussed regarding Brexit over the past few months are immigration, membership cost and trade. Immigration is one of the foremost reasons why a large portion of the population wants to break away from the EU. UK has no real say in limiting the number of people that can come in as citizens of EU members who are allowed to live in any member country. Current migration in the country is over 300,000 per year compared with the government’s target to bring it to below 100,000. Brexit supporters argue that public services are under pressure to provide for the growing population. (Read: The 3 Largest Issues Surrounding the UK's Potential Brexit)
Cost for being a member of the EU is another argument that was put forward by Brexit supporters. According to them, over 1 billion pound that is spent every month to be a EU member can be allocated to address other economic concerns. They also argue that the UK could ink free trade agreements with China and the U.S. if it breaks away from the EU as the European commission takes the lead in negotiations. This means that no EU member will have direct access to unique trade deals with other nations.
Arguments Against Brexit
People who are against Brexit also have some counter arguments regarding the above-mentioned issues. For an instance, the “remain” side argues that taxes that are paid by immigrants are more than what citizens of UK pay. So this offsets any burden to public services that crop up due to immigration. They also believe that immigrants increase the mobility of the workforce, which is poised to boost the economy. Since close to half of all of Britain’s trade is with the EU, this side argues that the benefits received by the UK for being a member of EU offset membership costs incurred by the nation. They also say that the risk of being exposed to euro is much lower in the case Britain compared to the other members as it has its own currency.
Regarding UK’s trade, the “remain” side argues that if Brexit happens it will lead to an increase in tariffs between the EU and UK and may in turn have a negative impact on the country’s trade. They also speculate that Britain’s trade may be more affected by a global economic slowdown if the nation decides to break away. While EU has a share of nearly half of the country’s exports, the volume of Britain’s imports from the EU exceeds its exports.
Mutual Funds in Focus
While there are solid arguments in favor of and against Brexit, it is also quite difficult to assess the extent of consequences that Brexit will have on the economies of Britain, the EU and the global economy. But one thing is assured that securities including stocks, ETFs and mutual funds with significant exposure to the UK will be in focus in the near term. Hence we have highlighted four European mutual funds from popular fund families that have more than 30% exposure to the UK and are poised remain on investors’ radar.
Fidelity Europe (FIEUX - Free Report) primarily invests in common stocks of companies located across different European companies. According to Morningstar, it currently allocates nearly 36.2% of its assets in securities from the UK. It holds 81 securities. This Zacks Mutual Fund Rank #1 (Strong Buy) fund invests around 87% of its assets in large- and mid-cap securities and the rest in small-cap securities. As of April 30, SAP SE took the top spot among the fund’s holdings with 3.57% assets invested in it.
Invesco European Growth A (AEDAX - Free Report) invests a large chunk of its assets in European securities. It currently allocates over 44.7% of its assets in securities from the UK. This Zacks Mutual Fund Rank #2 (Buy) fund has holdings of 82 securities. It invests more than 90% of its assets in large- and mid-cap securities and rest in small-cap securities. As of March 31, DCC PLC took the top spot of the fund’s holdings with 3.77% assets invested in it.
Putnam Europe Equity A invests a major portion of its assets in equity securities of companies from Europe that are believed to have impressive investment prospects. It currently allocates more than 30.8% of its assets in securities from the UK. This Zacks Mutual Fund Rank #2 fund holds 94 securities. It invests more than 97% of its assets in large- and mid-cap securities. As of March 31, Royal Dutch Shell PLC Class A had the top spot among the fund’s holdings with 4.29% assets invested in it.
T. Rowe Price European Stock (PRESX - Free Report) invests the lion’s share of its assets in common stocks of companies that have their primary operations in Europe. It currently allocates nearly 31.9% of its assets in securities from the UK. This Zacks Mutual Fund Rank #3 (Hold) fund holds 63 securities. It invests more than 70% of its assets in large-cap securities, while the other assets are invested in mid-cap securities. As of March 31, Nestle SA took the top spot of the fund’s holdings with 3.57% assets invested in it.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at https://www.zacks.com/funds.
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4 European Funds in Focus on Brexit Possibility
By the end of this month, the UK will finalize whether it will remain in or leave the European Union (EU). This possibility is now widely known as ‘Brexit.’ In a plebiscite on June 23, votes in favor or against of Brexit will be requested. This will decide the fate of the nation in the future.
Recently, several polls showed that though most of the voters are speculated to be in favor of Brexit, a significant number of them are still unsure. These voters may play an important role in the final call. Against this backdrop, mutual funds that have significant exposure to securities issued in the UK will remain on investors’ radar in the coming months.
Will Brexit Happen?
While five out of the eight most recently published surveys showed that percentage of people supporting Brexit exceeded those who are against it, only two indicated that Brexit may not happen. One opinion poll was tied. There remains a sizeable contingent of undecided voters. This portion of the population will swing the Brexit vote. (Read: Welcome to the June Glooms: Odds on Brexit?)
An ICM poll of 1,741 people taken from June 3–5 showed 48% would vote for an exit, up from 47% a week earlier, while 43% would opt to stay, down 1% from a week earlier. A YouGov poll of 3,495 people on June 1–3 showed 45% would opt to leave the EU, up from 40% in a comparable poll a month earlier, while 41% would opt to stay, down from 42%. Separately, these polls showed that around 11% of voters were still undecided, down 2% from a month earlier.
Arguments in Favor of Brexit
Issues that were mostly discussed regarding Brexit over the past few months are immigration, membership cost and trade. Immigration is one of the foremost reasons why a large portion of the population wants to break away from the EU. UK has no real say in limiting the number of people that can come in as citizens of EU members who are allowed to live in any member country. Current migration in the country is over 300,000 per year compared with the government’s target to bring it to below 100,000. Brexit supporters argue that public services are under pressure to provide for the growing population. (Read: The 3 Largest Issues Surrounding the UK's Potential Brexit)
Cost for being a member of the EU is another argument that was put forward by Brexit supporters. According to them, over 1 billion pound that is spent every month to be a EU member can be allocated to address other economic concerns. They also argue that the UK could ink free trade agreements with China and the U.S. if it breaks away from the EU as the European commission takes the lead in negotiations. This means that no EU member will have direct access to unique trade deals with other nations.
Arguments Against Brexit
People who are against Brexit also have some counter arguments regarding the above-mentioned issues. For an instance, the “remain” side argues that taxes that are paid by immigrants are more than what citizens of UK pay. So this offsets any burden to public services that crop up due to immigration. They also believe that immigrants increase the mobility of the workforce, which is poised to boost the economy. Since close to half of all of Britain’s trade is with the EU, this side argues that the benefits received by the UK for being a member of EU offset membership costs incurred by the nation. They also say that the risk of being exposed to euro is much lower in the case Britain compared to the other members as it has its own currency.
Regarding UK’s trade, the “remain” side argues that if Brexit happens it will lead to an increase in tariffs between the EU and UK and may in turn have a negative impact on the country’s trade. They also speculate that Britain’s trade may be more affected by a global economic slowdown if the nation decides to break away. While EU has a share of nearly half of the country’s exports, the volume of Britain’s imports from the EU exceeds its exports.
Mutual Funds in Focus
While there are solid arguments in favor of and against Brexit, it is also quite difficult to assess the extent of consequences that Brexit will have on the economies of Britain, the EU and the global economy. But one thing is assured that securities including stocks, ETFs and mutual funds with significant exposure to the UK will be in focus in the near term. Hence we have highlighted four European mutual funds from popular fund families that have more than 30% exposure to the UK and are poised remain on investors’ radar.
Fidelity Europe (FIEUX - Free Report) primarily invests in common stocks of companies located across different European companies. According to Morningstar, it currently allocates nearly 36.2% of its assets in securities from the UK. It holds 81 securities. This Zacks Mutual Fund Rank #1 (Strong Buy) fund invests around 87% of its assets in large- and mid-cap securities and the rest in small-cap securities. As of April 30, SAP SE took the top spot among the fund’s holdings with 3.57% assets invested in it.
Invesco European Growth A (AEDAX - Free Report) invests a large chunk of its assets in European securities. It currently allocates over 44.7% of its assets in securities from the UK. This Zacks Mutual Fund Rank #2 (Buy) fund has holdings of 82 securities. It invests more than 90% of its assets in large- and mid-cap securities and rest in small-cap securities. As of March 31, DCC PLC took the top spot of the fund’s holdings with 3.77% assets invested in it.
Putnam Europe Equity A invests a major portion of its assets in equity securities of companies from Europe that are believed to have impressive investment prospects. It currently allocates more than 30.8% of its assets in securities from the UK. This Zacks Mutual Fund Rank #2 fund holds 94 securities. It invests more than 97% of its assets in large- and mid-cap securities. As of March 31, Royal Dutch Shell PLC Class A had the top spot among the fund’s holdings with 4.29% assets invested in it.
T. Rowe Price European Stock (PRESX - Free Report) invests the lion’s share of its assets in common stocks of companies that have their primary operations in Europe. It currently allocates nearly 31.9% of its assets in securities from the UK. This Zacks Mutual Fund Rank #3 (Hold) fund holds 63 securities. It invests more than 70% of its assets in large-cap securities, while the other assets are invested in mid-cap securities. As of March 31, Nestle SA took the top spot of the fund’s holdings with 3.57% assets invested in it.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at https://www.zacks.com/funds.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>