As many of you know, I am half American and half English, with a father from Calvert County in Maryland and a mother from Lancashire in the U.K. I grew up in the U.K., then came to the U.S. for business school, and have lived here ever since. As a result, I have what I term a mid-Atlantic accent: when I am in the U.K., the English think I sound American, and when I’m here at home, people think I sound English.
I’m reminded of this now because every day I’m being asked “What about Brexit?”
I don’t think a British exit from the European Union is likely. The majority of popular opinion is running against it and the campaign its opponents will launch has not even gotten going yet. No business leaders are in favor of it. Prime Minister David Cameron is against it. The Conservative Party he leads won a landslide victory not that long ago, in May 2015.
Their victory – and certainly the margin of it – was a surprise. The nativist U.K. Independence Party – UKIP – had been seen as a rising tide; however voters soundly rejected their platform. And while there are some Conservative Party members – including some in the Cabinet – who favor leaving the E.U., the opposition Labour Party does not.
Scotland, which is still part of the United Kingdom after their referendum in 2014, is not in favor; nor is Northern Ireland. In general, the attitude among those wishing to remain in the E.U. is that it is better to have a seat at the table when the rules are being made since the rules affect everyone in Europe, whether they are official members of the E.U. or not — as Norway and Switzerland can attest. I generally believe in the prevalence of enlightened self-interest.
But, as some of my colleagues have pointed out to me, voters the world over could be said to be in an unpredictable mood. After all, we are seeing Donald Trump as the front-runner of one of the two major political parties in the presidential election primaries here in the United States, a circumstance few would have foreseen. And, just as the months until the referendum in June give the opponents of Brexit time to campaign against it, they also provide ample time for ugly headlines – such as renewed waves of refugees for instance, or another major terrorist attack – to sway opinion in the opposite direction.
The Impact of a ‘Brexit’ on Europe
Should Brexit indeed happen, what effect would it have?
Scotland would likely leave the U.K. Ireland, especially Northern Ireland, would suffer somewhat, as intra-island trade and labor movement became more cumbersome. The pound would likely weaken. Growth would slow in England and probably other parts of Europe as well, as everyone digests the implications of the change and makes adjustments. Company activity would be largely unchanged in terms of the goods and services offered.
How a ‘Brexit’ Would Impact the International Growth Fund
In the OppenheimerFunds International Growth Fund specifically, the companies that we own are predominantly global or supra-regional in scope. They are well-used to continually managing – and managing through – a variety of economic and geopolitical risks. Furthermore, we are long-term investors. We hold companies in our portfolio for an average of eight years; half of our companies we have held for 10 years or more.
Thus we do not try to tactically trade the portfolio to meet particular economic or geopolitical outcomes. We focus on investing for the long term in companies that benefit from secular growth trends and have demonstrated the ability to provide solid returns on capital to their investors through both the high- and low-growth periods of the business cycle. We try to buy them when they are on sale.
When it comes to “What about Brexit?” one thing is very clear to me indeed. Should it happen, short-term negative sentiment will provide us with the opportunity to buy stock in companies we want to own at prices that we’ll be more than happy to pay.
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Mutual funds are subject to market risk and volatility. Shares may gain or lose value.
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Eurozone investments may be subject to volatility and liquidity issues.
These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.