As one of the largest economies in the world, the United Kingdom has long been a major focus of American investors. The nation’s economy contracted sharply last year due to the disruption stemming from the COVID-19 pandemic. But the economy is beginning to recover as the vaccine rollout reaches more citizens.
The World Bank reported that U.K. gross domestic product (GDP) fell by 9.8% in 2020. An increase in consumer spending bolstered the economy in the third quarter (Q3) of 2021, but supply chain issues hampered growth. The economy grew by a modest 1.3% during the quarter, after growing by 5.5% in Q2 2021. Growth for 2021 is projected to be 7.1%, according to an economic forecast by the British Chambers of Commerce.
Investors looking to profit from these trends might consider a U.K. exchange-traded fund (ETF) that provides diversified exposure to a basket of U.K. equities.
- The U.K. stock market has underperformed the broader U.S. market over the past year.
- The three U.K. exchange-traded funds (ETFs), ranked by one-year trailing total return, are FKU, EWU, and EWUS.
- The top holdings of these ETFs are SEGRO PLC, AstraZeneca PLC, and Rightmove PLC, respectively.
There are three U.K. ETFs that trade in the United States, excluding funds with less than $50 million in assets under management (AUM). The U.K. equity market, as measured by the MSCI United Kingdom Index, has underperformed the broader market, with a total return of 16.5% over the past 12 months compared with the S&P 500’s total return of 27.9%, as of Nov. 30, 2021.
The best-performing U.K. ETF for Q1 2022, based on performance over the past year, is the First Trust United Kingdom AlphaDEX Fund (FKU).
We examine the three best U.K. ETFs below. All numbers below are as of Nov. 30, 2021.
- Performance Over One-Year: 23.9%
- Expense Ratio: 0.80%
- Annual Dividend Yield: 2.39%
- Three-Month Average Daily Volume: 8,052
- Assets Under Management: $94.4 million
- Inception Date: Feb. 14, 2012
- Issuer: First Trust
FKU tracks the NASDAQ AlphaDEX United Kingdom Index, which uses the AlphaDEX stock selection methodology based on growth and value factors to select 75 stocks from the NASDAQ United Kingdom Index.
The ETF provides exposure to U.K. equities of various market capitalizations. The sectors that receive the largest exposure in the fund are financials, industrials, and consumer discretionary, which account for more than half of the fund’s holdings.
FKU’s top three holdings are SEGRO PLC (SGRO:LON), a property investment and development company; Investec PLC (INVP:LON), a banking and wealth management company; and Tritax Big Box REIT PLC (BBOX:LON), a real estate investment trust (REIT) investing in logistics warehouses.
- Performance Over One-Year: 16.6%
- Expense Ratio: 0.51%
- Annual Dividend Yield: 2.68%
- Three-Month Average Daily Volume: 2,453,383
- Assets Under Management: $2.8 billion
- Inception Date: March 12, 1996
- Issuer: BlackRock Financial Management
EWU tracks the MSCI United Kingdom Index, which measures the performance of the broader U.K. equity market. The ETF provides exposure to midsize and large-sized U.K. companies. It’s a pure play on the U.K. economy.
The fund follows a blended strategy, investing in a mix of growth and value stocks. Its largest sector allocations are in consumer staples, financials, and healthcare, which account for about half of the fund’s assets.
EWU’s top three holdings are AstraZeneca PLC (AZN:LON), a global pharmaceutical and biotechnology company; Unilever PLC (ULVR:LON), a global consumer goods company; and Diageo PLC (DGE:LON), a global alcohol and beverage company.
- Performance Over One-Year: 16.2%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 1.36%
- Three-Month Average Daily Volume: 17,114
- Assets Under Management: $106.0 million
- Inception Date: Jan. 25, 2012
- Issuer: BlackRock Financial Management
EWUS tracks the MSCI United Kingdom Small Cap Index, which gauges the performance of small-cap equities whose market caps represent the bottom 14% of the U.K. securities market.
The ETF provides exposure to small publicly traded companies based in the United Kingdom, making it an effective pure play on the U.K. economy. The sectors receiving the largest allocation in the fund include industrials, consumer discretionary, and financials.
EWUS’s top three holdings are Rightmove PLC (RMV:LON), the manager of an online real estate and property website; Intermediate Capital Group PLC (ICP:LON), a global alternative asset management company; and Meggitt PLC (MGGT:LON), a maker of aerospace and defense products.
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