Are the American Funds Exposed to Brexit? | American Funds

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Investment Insights

July 2016

Are the American Funds Exposed to Brexit?

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.

1 Sources:Capital Group, FactSet

U.K. & Europe ex U.K. Exposure Across Funds & Indices2

Data as of June 30, 2016.

Indices

U.K.

Eur ex U.K.3

MSCI EAFE

19.6

44.2

MSCI WORLD

7.2

16.2

MSCI ACWI

6.4

15.2

MSCI ACWI ex USA

13.8

32.8

MSCI ACWI Smallcap

5.9

12.8

S&P 500

BARCLAYS U.S. AGGREGATE

BARCLAYS GLOBAL AGGREGATE4

5.8

12.8

Fund

U.K.

Eur ex U.K.3

AHIM

AHIT

1.4

6.4

AMBAL

2.1

2.6

AMCAP

0.7

2.1

AMF

2.1

1.0

BFA

1.1

4.3

CIB

15.6

11.1

DWGI

5.6

12.6

EUPAC

12.2

29.5

FI

2.8

3.0

GBAL

10.9

16.4

GFA

0.9

4.0

IBFA

0.8

3.9

ICA

2.7

2.5

IFA

7.7

5.1

IGI

16.6

29.7

NEF

4.9

5.0

NPF

5.9

19.9

NWF

6.1

16.5

SBF

0.7

0.9

SCWF

7.8

11.6

STBF

0.7

4.3

WBF

4.7

27.4

WGI

11.9

16.8

WMIF

2.3

1.5

Note: MSCI has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI data or use it as a basis for other indices or investment products.
2 Sources: Barclays POINT/Global Family of Indices, Capital Group, MSCI, S&P
Note: Standard & Poor’s 500 Composite Index℠ and S&P 500® are service/trademarks owned by The McGraw-Hill Companies, Inc.
3 Eur is Developed Europe + Emerging Europe as defined by MSCI.
4 Data as of March 31, 2016


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice. 

Terms and Definitions
A market capitalization-weighted index based on the results of approximately 500 widely held common stocks.
Bloomberg Barclays Global Aggregate Index represents the global investment-grade fixed-income markets.
MSCI All Country World ex USA Index is a free float-adjusted market-capitalization-weighted index that is designed to measure equity market results in the global developed and emerging markets, excluding the United States.
MSCI All Country World Index is a free float-adjusted market-capitalization-weighted index that is designed to measure results of more than 40 developed and emerging equity markets.
MSCI All Country World Small Cap Index is a free float-adjusted market capitalization weighted index that is designed to measure results of smaller capitalization companies in both developed and emerging equity markets.
MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market-capitalization-weighted index that is designed to measure developed market equity results, excluding the United States and Canada.
MSCI Europe Index is a free float-adjusted market capitalization-weighted index that is designed to measure results of more than 10 developed equity markets in Europe.
MSCI United Kingdom Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market results of the United Kingdom.
MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure results of more than 20 developed equity markets. Results reflect dividends net of withholding taxes.
Represents the U.S. investment-grade fixed-rate bond market.