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 U.K. Office for National Statistics reported that the gross domestic product (GDP) grew 4.8% in the second quarter (Q2) of 2021, although the pace slowed as COVID-19 cases spiked in July 2021. Economists forecast GDP could expand 7% for the year.

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.

Key Takeaways

  • The U.K. stock market has underperformed the broader U.S. market over the past year.
  • The U.K. exchange-traded funds (ETFs) with the best one-year trailing total returns are FKU, EWUS, and EWU.
  • The top holdings of these ETFs are Future PLC, Meggitt PLC, and AstraZeneca PLC, respectively.

There are four U.K. ETFs that trade in the United States, excluding inverse and leveraged funds. The U.K. equity market, as measured by the MSCI United Kingdom Index, has underperformed the broader market, with a total return of 27.4% over the past 12 months compared to the S&P 500’s total return of 33.5%, as of Aug. 17, 2021. The best-performing U.K. ETF for the fourth quarter (Q4) of 2021, 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 Aug. 17, 2021.

ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs, which can negate some of your investment gains or increase your losses.

First Trust United Kingdom AlphaDEX Fund (FKU)

  • Performance Over One-Year: 43.6%
  • Expense Ratio: 0.80%
  • Annual Dividend Yield: 2.04%
  • Three-Month Average Daily Volume: 6,440
  • Assets Under Management: $29.3 million
  • Inception Date: Feb. 14, 2012
  • Issuer: First Trust

FKU tracks the NASDAQ AlphaDEX United Kingdom Index, which uses the AlphaDEX stock selection methodology to select 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.

FKU’s top three holdings are Future PLC (FUTR:LON), a magazine publishing company; Tritax Big Box REIT PLC (BBOX:LON), a real estate investment trust investing in big box centers; and SEGRO PLC (SGRO:LON), a property investment and development company.

iShares MSCI United Kingdom Small-Cap ETF (EWUS)

  • Performance Over One-Year: 42.5%
  • Expense Ratio: 0.59%
  • Annual Dividend Yield: 1.30%
  • Three-Month Average Daily Volume: 17,002
  • Assets Under Management: $128.9 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 Meggitt PLC (MGGT:LON), a maker of aerospace and defense products; Intermediate Capital Group PLC (ICP:LON), a global alternative asset management company; and Rightmove PLC (RMV:LON), the manager of an online real estate and property website.

iShares MSCI United Kingdom ETF (EWU)

  • Performance Over One-Year: 25.8%
  • Expense Ratio: 0.51%
  • Annual Dividend Yield: 2.70%
  • Three-Month Average Daily Volume: 2,492,937
  • Assets Under Management: $3.6 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 mid- 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.

EWU’s top three holdings are AstraZeneca PLC (AZN:LON), a British-Swedish multinational pharmaceutical and biotechnology company; Unilever PLC (ULVR:LON), a multinational consumer goods company; and Diageo PLC (DGE:LON), a multinational alcohol and beverage company.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.