As the first round of the 2017 French presidential election approaches, interest in the outcome is naturally intensifying. Given that nearly 20% of Oppenheimer International Growth Fund is invested in 18 companies domiciled in France, we think it is worth taking a moment to discuss the French holdings in the portfolio and explain why we have not been swept up in the election angst.
Our reasons for investing in our France-domiciled portfolio holdings are unrelated to our view on the French economy: Each company we own is a global business, with one exception, a domestic mobile telephony business. Our investment decisions also have nothing to do with our outlook on potential outcomes of the French election: We have owned most of these companies for six or more years.
Harnessing Global Growth Trends
While our portfolio holdings are not based on our views on any country’s economy or political situation, they do reflect our views about enduring structural growth themes and the companies benefitting from them.
One of these themes is new technology, and within that theme, the impact of the “data deluge.” Several of our French companies benefit from the 30% annual growth in data being transmitted around the world. We own a telecommunications service provider, a satellite company, a cad-cam software supplier, an IT services contractor, two power solutions providers, a semiconductor circuit provider and the only pure play on virtual reality technology.
Our investments in innovation extend beyond the IT sector. French engineering expertise has produced leading companies in the oil and gas services industry, and we own one of them. This expertise is also present in the automotive industry, where rising demand for smarter and safer cars continues around the world regardless of a single economy’s performance. One of the car component companies we have added to our portfolio, as part of our “evolution of the car” investment subtheme, is French.
Another major structural growth theme is rising mass affluence, and luxury brands in particular are benefitting from this. The luxury industry is heavily dominated by French companies and, given the decades required to build a truly exclusive brand, that is unlikely to change in the foreseeable future. We own two of these brands. Affluence is increasing most dramatically in the emerging markets and bringing increased demand for the products and services middle-class consumers want. We own several French companies that are benefiting from this trend and operate on a global scale, including one of the world’s main dairy product and infant formula suppliers, a leading branded alcohol supplier, a dominant corrective lens manufacturer, and one of the world’s two long-range commercial jet manufacturers.
Taking the Long View in France
Just four years ago, the election of Francois Hollande was viewed as disastrous for French business, and yet it has survived very well. The concern now is that the French may elect Marine Le Pen and that, if they do, she will initiate a “Frexit,” pulling France out of the European Union. Many fear such an action would crater the euro.
We offer two observations regarding these concerns. The first is that skepticism about the euro as a currency has been getting priced into markets for quite some time now. The second is that executing a “Frexit” would take a long time, allowing those companies affected by it to make adjustments.
We remain confident that our French companies are applying their considerable expertise to supplying goods and services to meet demand trends that will continue regardless of who wins the election in France. They have developed their competitive advantages over decades, several of them over more than a century. During that time, France has experienced two world wars, a great depression, the fall of the Third Republic, the fall of the Fourth Republic, the loss of an overseas empire, two postwar waves of nationalization followed by privatization, and several significant currency devaluations.
Our point here is not to dredge up history or predict a particular election outcome. We simply think it’s worth remembering, in the midst of all the concerns about the election, that companies are made up of people and, therefore, are living entities that grow and adapt as their environment changes. Our French companies have been doing that successfully for quite a long time, regardless of who has been in the Palais de l’Élysée. In our opinion, they will continue to do so.
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