As one of the largest economies in the world, the U.K. has long been a major focus of American investors. The nation's economy contracted as much as 10% last year due to the disruption stemming from the COVID-19 pandemic. But the economy is beginning to recover as the country emerges from lockdown and as the vaccine rollout reaches more citizens. The Bank of England expects the nation's economic growth to return to pre-pandemic levels by the end of this 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 ETFs with the best 1-year trailing total return are FKU, EWUS, and EWU.
  • The top holdings of these ETFs are Royal Mail PLC, Intermediate Capital Group PLC, and Unilever PLC, respectively.

There are 4 U.K. ETFs that trade in the U.S., excluding leveraged and inverse funds. The U.K. equity market, as measured by the MSCI U.K. Index, has underperformed the broader market with a total return of 36.3% over the past 12 months compared to the S&P 500's total return of 40.6%, as of May 27, 2021. The best-performing U.K. ETF for Q3 2021, based on performance over the past year, is the First Trust United Kingdom AlphaDEX Fund (FKU). We examine the top 3 best U.K. ETFs below. All numbers below are as of May 31, 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 1-Year: 61.8%
  • Expense Ratio: 0.80%
  • Annual Dividend Yield: 1.14%
  • 3-Month Average Daily Volume: 7,378
  • 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 industrials, financials, and materials. The fund's top three holdings include Royal Mail PLC (RMG:LON), a multinational postal service and courier company; Investec PLC (INVP:LON), an international specialist bank and asset manager; and Glencore PLC (GLEN:LON), a Anglo-Swiss multinational commodity trading and mining company whose headquarters are in Switzerland.

iShares MSCI United Kingdom Small-Cap ETF (EWUS)

  • Performance over 1-Year: 57.4%
  • Expense Ratio: 0.59%
  • Annual Dividend Yield: 1.70%
  • 3-Month Average Daily Volume: 24,495
  • Assets Under Management: $124.3 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 U.K., 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. The fund's top three holdings include Intermediate Capital Group PLC (ICP:LON), a global alternative asset management company; DS Smith PLC (SMDS:LON), a multinational packaging company; and Royal Mail.

iShares MSCI United Kingdom ETF (EWU)

  • Performance over 1-Year: 33.3%
  • Expense Ratio: 0.51%
  • Annual Dividend Yield: 2.14%
  • 3-Month Average Daily Volume: 3,711,103
  • Assets Under Management: $3.8 billion
  • Inception Date: March 12, 1996
  • Issuer: BlackRock Financial Management

EWU tracks the MSCI United Kingdom Index, which is designed to measure the performance of the broader U.K. equity market. The ETF provides exposure to large and mid-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 both growth and value stocks. The fund's largest sector allocations are in consumer staples, financials, and materials. The fund's top three holdings include Unilever PLC (ULVR:LON), a multinational consumer goods company; AstraZeneca PLC (AZN:LON), a British-Swedish multinational pharmaceutical and biotechnology company; and HSBC Holdings PLC (HSBA:LON), a British multinational investment bank and financial services holding 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 to 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 on 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.