U.K. ETFs Confront Brexit Head On
This article was originally published on ETFTrends.com.
While the U.K. continues wrangling with various elements of Brexit, the country's departure from the European Union (EU), U.K. stocks and the related exchange traded funds are soaring. The iShares MSCI United Kingdom ETF (EWU) , the largest U.K.-related ETF, is higher by nearly 14.50% this year.
After taking out the currency swings associated with the weaker British pound sterling currency, U.K. stocks reveal a long-term under-performance. In U.S. dollar terms, the FTSE 350 benchmark is trading around the same level it did at the start of 2016.
With its gain of 5.66% just this month, EWU recently took out its 200-day moving average and some market observers like the technical conditions for the benchmark U.K. ETF.
“By Friday's close, EWU had not only ramped above its 200-day moving average for the first time since June 18, but it did so for three consecutive sessions to end the week. The strong weekly finish above this benchmark trendline follows a late-February breakout by EWU above its 160-day moving average, which was quickly confirmed by a successful retest of this level as support earlier this month,” according to Schaeffer's Investment Research.
Another Idea for U.K. investing exposure
Investors, though, may now pay less for the stocks in the U.K. than they did three years ago. Looking at predicted earnings, shares declined ahead of the referendum and have traded at lower multiples to U.S. stocks ever since the initial breakup vote. EWU is also trading at around a 12.7 price-to-earnings and a 1.3 price-to-book, compared to the S&P 500’s 16.2 P/E and 2.8 P/B.
For investors looking to limit U.K. exposure while still participating in some of that market's upside, the ProShares MSCI Europe Dividend Growers ETF (CBOE:EUDV) is an ETF to consider. EUDV allocates 39.70% of its weight to U.K. stocks, by far the fund's largest geographic exposure.
EUDV can help investors access European equities with steady track records of rising payouts. EUDV tracks the MSCI Europe Dividend Masters Index, which requires member firms to have boosted payouts for at least 10 consecutive years. EUDV is up 4.22% this month.
As for EWU, that ETF “had concluded January with a decisive takeout of the key 80-day moving average that had capped its late-September highs. The strength of the U.K. equity fund's bullish trend is backed up by its 14-day Average Directional Index (ADX), which is holding above 30 -- pointing to a high-momentum move up the charts, as opposed to the final legs of a waning rally,” notes Schaeffer's.
For more information on the global markets, visit our global ETFs category.
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