As per our communication of the 17th October 2018, E.I. Sturdza Strategic Management Limited (“EI Sturdza”) continues to monitor news flows with regards to the ongoing Brexit negotiations; however given the lack of any material clarity, we have planned for a “hard Brexit” whilst continuing to evaluate additional potential risks and opportunities that may arise.
Within our prior announcement in this regard, we highlighted that one item we were continuing to monitor was the potential impact that Brexit would have on the French PEA (Plan d’épargne en actions) regime. The PEA regime requires that eligible investment products invest on a permanent basis at least 75% of its assets in securities or rights eligible to the PEA regime, which as at the date of drafting includes UK equities.
The Strategic Europe Value Fund is currently deemed a PEA compliant Fund, investing on a continuous basis at least 75% of its NAV in eligible assets. As at the end of January 2019 the Fund was holding equity exposure of 93.19% with cash representing the balance. Further at the country level the portfolio’s exposures were as follows:
Therefore under the current regime, the Fund, satisfies the eligible asset threshold associated with the PEA; however should there be no agreement between the UK and France post Brexit, and UK equities cease to be deemed “eligible assets” within the PEA regime, the Fund’s exposure to eligible assets would fall to ~45%.
The Investment Adviser has been consulted in this regard and provided guidance that to limit exposure to “non-eligible” assets to 25% of NAV, including UK stocks would have a material impact on their ability to deliver upon their investment objective and lead to a deviation in the investment strategy. As such, should there be no agreement between the UK and France post the implementation of Brexit, it is anticipated that the Fund will no longer be compliant with the PEA regime and we would accordingly advise our clients that require PEA compliant assets to take appropriate action in order to restructure their own portfolio allocations. Modifications, if necessary, will be made to the Fund supplement within the prospectus, removing reference to PEA compatibility.
EI Sturdza will continue to monitor the evolution of the Brexit negotiations in this regard and any communications or guidance provided by the Autorité des marchés financiers (“AMF”) with regards to the treatment of UK equities. As soon as clarity is obtained, a further announcement will be made to provide definitive guidance to our position in this regard.