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U.K. ETFs Could See Volatility on Scotland Referendum


The United Kingdom has been a solid, stable force in the global economy, but a Scottish referendum for independence could throw Great Britain into turmoil.

Scotland, a part of the United Kingdom occupying the northern third of the island of Great Britain and second largest trading market in the U.K., is set to vote September 18 on whether to stay in the U.K. or push for an independent state, reports William James for Reuters.

In a recent opinion poll, around 42% of Scots plan to vote against independence and 29% are in favor, and the separatists are gaining momentum.

Oil producer BP (BP) CEO Bob Dudley has already warned that there are “big uncertainties” over the possibility of Scotland becoming independent, BBC reports.

If Scotland were to declare its independence, the British government has already stated that it means leaving the United Kingdom’s monetary union, or British sterling pound. However, Scotland may adopt the euro currency, which would make it easier for the newly formed state to trade with the rest of Europe.

The iShares MSCI United Kingdom ETF (EWU) is the largest ETF to track the United Kingdom, which includes England, Scotland, Wales and Northern Ireland. EWU is up 11.3% over the past year but has declined 5.5% year-to-date.

The First Trust United Kingdom AlphaDEX Fund (FKU) provides a smart-beta play on U.K. stocks as the underlying index selects components based on factors like book value to price, cash flow to price and return on assets. FKU has gained 24.1% over the past year.

Additionally, if the British pound sterling depreciates, investors can gain exposure and hedge against the weaker currency with ETF options like WisdomTree United Kingdom Hedged Equity Fund (DXPS) and db X-trackers MSCI United Kingdom Hedged Equity Fund (DBUK) , which are down 4.8% and down 1.5% year-to-date, respectively.

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.