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Post-Wimbledon, Consider U.K. ETFs


Over the weekend, Scotsman Andy Murray became the first man from the United Kingdom to win Wimbledon in 77 years. It might just be a coincidence that the iShares MSCI United Kingdom ETF (EWU) rose 0.6% Monday on volume that was nearly 25% above the daily average, but there are legitimate reasons beyond sporting ebullience to consider EWU and rival funds.

Developed markets excluding the U.S. and Japan have not been too impressive this year. The U.K. and EWU are not exceptions to that scenario as the $2.1 billion ETF is down 1.1% year-to-date. With the pound tumbling in the past month, EWU has tumbled along with the currency, shedding almost 5%, but there are signs things might be starting to look up for the U.K. and the relevant ETFs. [U.K. ETF Shakes-Off Recession Fears]

U.K. business confidence and output both rose to 13-month highs in June while Capital Economics said the country could be in for a period of “catch up” economic growth, report Emma Charlton and Anchalee Worrachate for Bloomberg.

The Bank of England kept interest rates at 0.5% and its asset-buying program at 375 billion pounds following its meeting last week, but last Thursday, BoE the central bank said economic data over the past few months was consistent with the recovery set out by the bank in its May inflation report, but warned that the “significant upward movement” in bond yields would weigh on the outlook for growth.

Additionally, Goldman Sachs said more “unconventional easing” is likely in the U.K. while Capital Economics said “could trigger more support from monetary policy,” according to Bloomberg. [Good Timing For This New ETF]

Further stimulus efforts by BoE could be a boon for EWU, though the ETF is not currency-hedged. Ongoing legal drama surrounding BP’s (BP) oil spill trial has sent that stock, which is 5.2% of EWU’s weight, down more than 4% in the past month. To be fair, talk of more monetary easing and improved economic data has helped EWU gain almost 1% in the past week.

Investors looking for an equity play that profits from a weaker pound, assuming BoE increases its stimulus efforts, may want to consider the new WisdomTree United Kingdom Hedged Equity Fund (DXPS) . DXPS hedges fluctuations in the pound/U.S. dollar currency pair while offering exposure to 140 U.K. stocks, a lineup that includes a 5% weight to BP. [International ETFs: Overcoming Home Bias]

DXPS is not even a month old, so it is still small with just over $2.5 million in assets, but like EWU, the new U.K. ETF has shown some sensitivity to positive U.K. economic news, gaining 3.1% since its debut. Investors looking for U.K. small-caps can consider the iShares MSCI United Kingdom Small-Cap ETF (NYSEArca: EWUS), which has gained 1% in the past week.

iShares MSCI United Kingdom ETF

ETF Trends editorial team contributed to this post.

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.