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Export Growth Holds Back U.K. ETFs From Breaking Out


United Kingdom exchange traded funds are gaining momentum, but sluggishness in the Eurozone and the lack of export growth could put Britain’s economy off its game.

Bank of England Governor Mark Carney acknowledged that weakness in the Eurozone could hinder the country’s export outlook and limit rebalance of the economy, reports Eshe Nelson for Bloomberg. Consequently, the Monetary Policy Committee could maintain its loose monetary policy and won’t raise rates for some time.

“If you look at the situation the U.K. is in right now, that demand is not going to come from outside our shores,” Carney said. “The euro zone has improved somewhat but is still very weak, effectively a stagnation.”

The U.K. expanded 0.8% in the last quarter, its fastest clip in more than two years, led by consumer spending, construction and stock building. [A Spot of Tea With U.K. ETFs]

“The consumer is a big part of the economy, so it’s always going to be an important component of growth but it shouldn’t be the sole component,” Carl Astorri, senior economic adviser to the EY ITEM Club, said in the article. “To get the stronger recovery that we’re forecasting for next year does rely on it broadening out.”

Economists are worried that the heavy reliance on consumer spending to fuel the country’s growth could put the economy at risk if the Bank of England tightens policies.

If growth remains skewed toward the consumer “it would make the economy very sensitive to interest rates and would limit the extent to which the MPC would be able to raise interest rates,” Astorri said.

U.K. related ETFs include:

  • iShares MSCI United Kingdom ETF (EWU) : up 14.8% year-to-date
  • iShares MSCI United Kingdom Small Cap (EWUS) : up 30.6% year-to-date
  • First Trust United Kingdom AlphaDEX Fund (FKU) : up 21.5% year-to-date
  • WisdomTree United Kingdom Hedged Equity Fund (DXPS) : up 0.9% over the past three months; started trading June 28
  • db X-trackers MSCI United Kingdom Hedged Equity Fund (DBUK) : down 1.6% over the past month; started trading Oct. 1. [ETF Spotlight: DB’s Currency-Hedged U.K. ETF]

For more information on the U.K., visit our United Kingdom category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.