Two outperforming ETFs offer exposure to discounted U.K. equities as the shrinking domestic economy faces a recession lasting as long as two years in the wake of the pandemic and Brexit.
The iShares MSCI United Kingdom ETF and the Franklin FTSE United Kingdom ETF exchange-traded funds (ETFs) invest in mid-cap and large-cap stocks in industries including pharmaceuticals, energy, consumer goods and financials.
The two funds outperformed the 19% drop in the S&P 500 Index and 10% drop in the benchmark MSCI United Kingdom Index in the last year as of Nov. 9.
- Two U.K. ETFs that trade in the U.S. are the iShares MSCI United Kingdom ETF and the Franklin FTSE United Kingdom ETF.
- Both funds outperformed the broader market and a benchmark U.K. index in the last year.
- The top holding of both ETFs is Shell PLC.
These two funds are the only U.K. ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM).
Many U.K. equities trade at discount to euro-area stocks and the S&P 500 largely due to the economy, which contracted in the third quarter and is the only large industrialized economy to fail to rebound to pre-pandemic output levels.
We examine both below. All numbers below are as of Nov. 10, 2022.
iShares MSCI United Kingdom ETF (EWU)
- Performance Over One Year: -6.6%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 2.68%
- Three-Month Average Daily Volume: 3,762,682
- Assets Under Management: $3.0 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 market-cap-weighted ETF provides exposure to mid- and large-sized U.K. companies. The fund's largest sector allocations are in consumer staples, financials, and energy, which combined account for about half of the fund’s assets.
The fund follows a blended strategy, investing in a mix of growth and value stocks. EWU's top three holdings are Shell PLC (SHEL:LON), an energy and petrochemical company; AstraZeneca PLC (AZN:LON), a pharmaceutical and biotechnology company; and Unilever PLC (ULVR:LON), a maker of various consumer goods.
Franklin FTSE United Kingdom ETF (FLGB)
- Performance Over One Year: -8.4%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 2.76%
- Three-Month Average Daily Volume: 356,536
- Assets Under Management: $412.0 million
- Inception Date: Nov. 2, 2017
- Issuer: Franklin Templeton
FLGB seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE U.K. Capped Index. The ETF provides exposure to mid- and large-sized companies in the U.K. The fund's largest sector allocations are in consumer staples, financials, and energy, which make up almost half of the fund's assets.
Like EWU, the top holdings of FLGB are Shell, AstraZeneca, and Unilever.
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