As VW boss resigns, which funds are likely to be hit by the emissions scandal?

23rd September 2015


Volkswagen boss Martin Winterkorn has resigned over the emissions scandal that has hit the firm.

In a statement delivered in Wolfsburg, Professor Winterkorn said:

“I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group.

“As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group.

“I am doing this in the interests of the company even though I am not aware of any wrong doing on my part. Volkswagen needs a fresh start – also in terms of personnel. I am clearing the way for this fresh start with my resignation. I have always been driven by my desire to serve this company, especially our customers and employees.

“Volkswagen has been, is and will always be my life. The process of clarification and transparency must continue. This is the only way to win back trust. I am convinced that the Volkswagen Group and its team will overcome this grave crisis.”

FE research analyst Charles Younes looks at the funds likely to be hardest hit by the news that Volkswagen has misled the US emissions controls test for their diesel cars…

Volkswagen’s share price dropped some 19% on Monday as news that it had cheated its US Emissions tests hit headlines. This not only triggered panicked sell-off of VW shares – but also affected a broader auto sector sell-off as investors digested the news.

More than €15bn was wiped off VW’s market capitalisation on Monday, after the car-maker’s group chief executive admitted to the wrong-doing.

What has happened has the potential to really affect VW long-term, and in turn the wider German and European auto sector. Especially as the American consumer-base has traditionally viewed European cars as cleaner than their US counterparts.

This news will have huge reputational and financial implications – and when you consider that Germans are viewed as above board and there is a level of trust readily given manufactures from that country – the ramifications can continue for years.

VW now faces recalling around 500,000 of its diesel cars and a £18m fine according to Bloomberg, if not more. To put it in context – around 23% of VW’s diesel car sales are in the US and around 19% of VW’s entire review comes from North America.

The automobile sector has been a big driver of European equities over the past three years – especially when you consider that the FTSE Germany Automobile and FTSE European benchmarks have a +0.78 correlation over the last three years.

Investors should also consider that one of the biggest growth areas for the auto sector has been emerging markets, but that has been slowing down. The US was the second area of growth for this sector, especially as it was benefitting from the favourable EUR/USD exchange rate – but this scandal will also have a negative effect.

All of this should go long way to explain the way the market has reacted.

Using data from FE Analytics, here are the funds with the highest exposure to Volkswagen in the Investment Association:

Hermes Multi Strategy Credit  May 14 (KF4G)  4.8%

Hermes Absolute Return Credit May 15 (M85L) 4.44%

Man GLG  European Alpha Alternative July 09 (FRV8) 2.14%

Patrick Connolly, financial planner at Chase de Vere, says: “It’s not just the Volkswagen share price which has been affected, the news has had a knock-on effect to other automobile companies, particularly in the Europe and the US.

“Many active funds are underweight automobiles because of concerns of a lack of demand from the emerging markets and income funds are likely to have only a small exposure or none at all. However, some active growth funds haven’t been underweight and passive funds will automatically be exposed in line with the index and so both of these have been hit.”

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