Brexit’s Impact For Equity Investors

Sometimes the best questions are also the toughest to analyze.

For someone who moved to the U.K. in the last year, the “Brexit Question” has been important. But it’s also important for U.S. investors. This year there have been dates, potential votes and points when you’d expect to have a more thorough understanding of what Brexit will mean…yet, we are all left staring at each other, still wondering what the outcome might be.

While we may not be able to answer the question as to what Brexit will look like, we can provide greater context for European equity investors.

Question 1: Have European companies outside the U.K. seen their performance impacted thus far by the Brexit process?

Our approach:

  • Separate the companies into two groups—those that derive more than 30% of their revenue from the U.K., and those that derive less than 30%.
  • Compare the median returns of both groups, and note the return of the MSCI Europe IMI for an idea of the market environment during the same periods.

Our conclusions:

  • Whether looking at periods of three months, one year or two years after the Brexit vote, there was a significant difference in companies’ median returns based on the amount of revenues received from within the U.K. Over each period, having less revenue from the U.K. led to higher median returns.
  • More recently, in 2019, there has been less differentiation in the median returns for the groupings in figure 1, which are based on revenues from within the U.K.

While it’s logical to think that Brexit and the process that we have been undergoing does matter, it may not be the sole factor influencing the returns of these companies. We caution investors against oversimplifying a complex issue based on a single table.

Figure 1: Sensitivity of European Companies to Revenues from the U.K.

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Disclaimer: Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. U.S. investors only: To obtain a prospectus containing this ...

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