Brazier: I'm Eurosceptic But Anti Brexit

Five-star UK equity fund manager Simon Brazier of Investec explains why leaving the EU would be problematic for the companies he invests in

Emma Wall 22 March, 2016 | 9:30AM
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Emma Wall: Hello and welcome to the Morningstar Series "Why Should I Invest With You?" I'm Emma wall and I'm joined today by Simon Brazier, manager of the Investec U.K. Alpha Fund.

Hi Simon.

Simon Brazier: Hi, Emma.

Wall: So I would like to talk about Brexit, today. You have described yourself or have been described as a Euro skeptic. And yet you've also said it would be best for the U.K. if we stay in the EU. How do you square those two arguments?

Brazier: Well, anybody who's known me for a long time. I have been a Euro skeptic forever really. It's based on the fact that I struggle to see how the direction of travel for Europe is around political integration, but that requires economic integration which I find quite difficult. Though I don’t believe on the longer term the European entity can survive one interest rate, one set of monetary policy across different countries that ultimately want their own sovereignty. Hence I do have always said that I think that that will be struggle.

Having said that from a U.K. perspective I look at it as a U.K. for manager and what's best for my company, which is therefore best for my clients. And it is clear to me that we're 43 years and now of us being part of the European economic area. The companies are very used to working within that environment so there are also positive benefits from that.

When I meet companies day-to-day it's in two aspects. It’s the regulatory aspect, which is they don't want to be in a position where they have to rewrite the rules, if you are an airline, if you are bank et cetera. And they have access to capital across Europe whether it's from a financial institutions point of view or whether you are property company that gets investment. The reality is that most companies are relatively happy where they are today and they see the frictional cost of leaving to be quite significant.

Wall: From where we are sitting today, it's very difficult to make any kind of prediction. But whatever the outcome, we're now seeing quite a lot of market uncertainty because of it and market uncertainty means market volatility which I imagine for U.K. investor is fantastic opportunities.

Brazier: Yeah. It would scare some people, but for us I have always said we'll use short term volatility, but to exploit long term valuation. So we're not going to be sitting here trying to buy something and sell it in the next few months come running up to June. What we'll do is if we see the opportunity to buy company whether it's because of currency moves, whether it's because of the polls get very close and people are concerned around the outcome of the poll. If it means we get these short term opportunity for a long term valuation than we will use that.

Wall: And where are you seeing these opportunities?

Brazier: Good question. There is a subset of companies that I think is unaffected and these are the global companies. The likes of Unilever or Diageo et cetera, who have always have to deal with this type of uncertainty. These companies have grown up in Africa, in Asia, in Latin America with devaluations with crisis and military crisis et cetera.

And they are globally diversified and they are able to handle that within their business models. Where there is more uncertainty definitely is those companies are more exposed to the U.K. and/or Europe. And as I have said earlier from a regulatory perspective, look at EasyJet.

That is a company, they have been very explicit. They operate within Europe they have free access to landing rights. They have free access to airspace. If an air slot comes up in Charles de Gaulle Airport in Paris, EasyJet have as much right to that as Air France.

If we were to leave the EU that would not be the case and actually their biggest competitor Ryanair would still be part of the EU. And there is other companies particularly the banks for example. I mean most European banks passport themselves into Europe their ability to operate within the economic union through the U.K. Even Deutsche Bank I believe passports itself through the U.K. And so again there would be a hiatus around their ability to undertake their business if we were to see that happen. So those types of businesses, particularly their focus on the regulatory side it will be tricky.

Wall: Simon, thank you very much.

Brazier: Not at all.

Wall: This is Emma Wall for Morningstar. Thank you for watching. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Ninety One UK Alpha A Acc2,614.53 GBP-0.51Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar