Brexit fund favours UK exporters

French boutique Financière de la Cité, which runs the FDC Brexit fund aiming to benefit from the post-Brexit context since 31 December 2016, has highlighted the resilience and the strong cohesion of the British society in its latest note.

The fund’s co-portfolio manager Alexis Charveriat stressed that the Brexit could be an opportunity for the United Kingdom having beaten the markets’ odds so far.

“The depreciation of the sterling will contribute to the rebalancing of the British economy, the government has launched a big plan to support cutting-edge industrial sectors, the Bank of England supports this strategy with an accommodating monetary policy and lastly, nothing seems to seriously challenge the supremacy of the City,” listed Charveriat.

Charveriat said that the strong cohesion of the British society remains an edge in the forthcoming Brexit negotiations in comparison with a puzzled eurozone which sees divergent interests among countries, European populations less attached to their institutions as well as insurmountable disagreements between creditors and debtors.

In that context, he explained that the depreciation of the sterling will help the UK to wane its commercial deficit and he expects a rebalancing of the growth towards British industrials at the expense of financial and real estate businesses.

“British companies will improve mechanically their competitiveness in terms of prices, rendering them more attractive for foreign investors. Hence earnings growth of the FTSE 100 companies, expected to rise by 15.4% for 2017, should be among the highest in Europe behind Spain (19% rise in earnings growth expected for 2017).

“On the other hand, the depreciation of the sterling is offering entry points to a number of foreign investors such as pension funds, private equity funds and industrials for the purchase of companies at devalued prices,” said Financière de la Cité’s Charveriat.

The fund manager pinpointed that the cumulated amount of mergers and acquisitions has risen by 50% since the start of 2017, to $75.6bn from $50.6bn.

The FDC Brexit fund has therefore picked up British company Amec Foster Wheeler, specialised in oil, gas and chemicals equipement, that is targeted by a takeover bid from its competitor John Wood Plc.

British exporters are favoured by the management team such as Imperial Brands, Diageo (agri-food sector), Shire Plc (healthcare), Inmarsat (telecoms), Rio Tinto (core resources).

Among British industrial companies, the FDC Brexit fund expresses a preference for defensive stocks (BAE Systems, Coham, Qinetiq, Smiths Group, Ultra Electronics) as they might benefit from the further rise of the state budget.

A few niche British small and mid caps like GKN and Morgan Advanced Materials have also been added to the portfolio.

Switzerland represented 25.4% of the fund’s allocation as at the end of April 2017. The manager has selected innovative and specialised stocks in the following sectors: luxury (Richemont, Swatch), pharmaceuticals (Novartis, Roche), medical equipments (Sonova), fertilisers (Sygenta) and industry (ABB)

Another 19.4% of the fund are invested in Scandinavian stocks.

On aggregate, only 16% of the revenue of the companies selected in the FDC Brexit fund is made within the eurozone. It is expected these firms will face an average 7.8% increase in turnover and a 14.2% growth in earnings. The price earning ratio of the FDC Brexit fund is estimated at 14x for 2017.

Adrien Paredes-Vanheule
Adrien Paredes-Vanheule is deputy editor and French-Speaking Europe Correspondent for InvestmentEurope, covering France, Belgium, Geneva and Monaco. Prior to joining InvestmentEurope, he spent almost five years writing for various publications in Monaco, primarily as a criminal and financial court reporter. Before that, he worked for newspapers and radio stations in France, in particular in Lyon.

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