French Brexit Fund Sees Euro-Region Breakup as a Greater Risk

(Bloomberg) -- A French asset-management firm is offering its clients an opportunity to hedge against the euro zone’s break-up by betting on European exporters that sell most of their products outside the bloc.

Financiere de la Cite’s FDC Brexit fund is weighted toward U.K. companies including Smith Group Plc, Diageo Plc and BAE Systems Plc, which are profiting from the pound’s weakness in the wake of the Brexit vote. The 47 million-euro ($51 million) fund has also invested in Swiss and Scandinavian companies since it was launched in December and is having a roadshow to raise more money.

“If the euro zone was to explode in the worst-case scenario, we would expect companies based in the U.K., Switzerland and Scandinavia -- outside the currency union -- to benefit,” said Alexis Charveriat, the executive at Paris-based Financiere de la Cite who manages the fund.

The FDC Brexit fund has gained about 5 percent since it was set up, while the Stoxx Europe 600 Index has risen about 7.1 percent and the FTSE 100 Index has added 1.5 percent.

The fund enables European investors to become less dependent on companies in the EU at a time when populist forces are threatening the euro zone. The U.K. is set to leave the EU in less than two years, while French presidential candidate Marine Le Pen has campaigned to give up the euro, though she’s since softened her stance.

"Eurosceptics, Frexit and a populist surge would all go in favor of the Brexit fund rather than any other European fund," Charveriat said. "It was specifically designed to cover that risk."

The FDC Brexit fund has stakes in 40 companies, with the U.K. accounting for about 52 percent of its investments and Switzerland 27 percent. To isolate itself from a potential break-up of the currency union, the fund favors companies that generate at least 80 percent of their revenue from elsewhere and it doesn’t invest in financial-services businesses.

"French institutional investors tend to be exposed to the euro zone," said Bruno Demontrond, head of equity management at Financiere de la Cite. "They are fully aware of concentration risk.”

Financiere de La Cite was founded in 2005 and manages about 2 billion euros of assets.

To contact the reporter on this story: Julie Edde in London at jedde2@bloomberg.net.

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Andrew Blackman