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It's Complicated: How Brexit May Affect International Mutual Funds

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It's Complicated: How Brexit May Affect International Mutual Funds PART 1 OF 26

Brexit and China: A Tough 2016 So Far for International Mutual Funds

International mutual funds are depressed

Macro factors have been dominating the financial landscape so far in 2016. One significant factor is China’s shaky economic fundamentals. Another major factor has been the possibility of Britain (EWU) exiting the European Union—colloquially known as Brexit—which has now materialized.

These events have had a worldwide impact (ACWI) (VT). Other factors, such as Japan’s (EWJ) seemingly never-ending fight with deflation, have a more limited geographic impact.

Brexit and China: A Tough 2016 So Far for International Mutual Funds

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The global economy

However, broadly, the global economy is not in good shape. The World Bank recently released its June 2016 Global Economic Prospects Report. In this report, the World Bank reduced its growth projection for the global economy for 2016 and the next two years.

While Japan (DXJ) continues to reduce its inflation expectations, policymakers at the US Federal Reserve have reduced their projections for economic growth in 2016. In fact, global factors figured prominently in the Fed’s communication regarding the slow pace of rate hikes in 2016 and 2017 (VTI) (USMV).

In this series

The above chart shows the point-to-point returns of 12 international mutual funds. Most of these are ex-US or have a very limited exposure to US securities, although there are a few exceptions (UNCGX) (IVINX).

As you can see, all the international mutual funds have posted negative returns in the year so far. Apart from mutual funds, we have graphed the performance of two ETFs: the iShares MSCI ACWI Ex-US ETF (ACWX) and the Vanguard FTSE All-World Ex-US ETF (VEU). This gives you a passive fund comparison.

In this series, we’ll break down the performance of the 12 mutual funds chosen for this review. We’ll see which sectors and stocks have contributed to their performance and also see how their sectoral stock picks have fared compared to a passively managed ETF.

Let’s begin our review with the AB International Growth Fund – Class A (AWPAX).

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