Depending on who you ask, you might hear that Britain is headed for technical recession with the pound sinking even more in value relative to the dollar – or that the country is poised for economic growth following Brexit. Throughout 2017, the currency’s value versus developed countries continued to weaken following new lows reached in 2016. 

Hovering around $1.30 in 2017, the currency's relative weakness may provide an attractive entry point for investors willing to wait out the economic turmoil and bet on a recovery. If you are considering adding exposure to the British pound, these three exchange-traded funds (ETFs) may be a good place to start. (See also: The British Pound: What Every Forex Trader Needs to Know.)

Note: Funds were chosen based on currency exposure and performance.

1. CurrencyShares British Pound Sterling ETF (FXB)

  • Issuer: Guggenheim
  • Assets under Management: $210.38 million
  • 2017 YTD Performance: 9.10%
  • 2018 YTD Performance: 4.79%
  • Expense Ratio: 0.40%
  • Price: $137.48

FXB is one of two major players in the British pound space offering investors pure exposure to the British pound sterling. At a cost of 40 basis points, FXB employs the simple strategy of holding physical pounds on deposit, albeit in an uninsured deposit account at JPMorgan Chase & Co. The Fund has good liquidity and tight spreads, making it easy to trade for even small investors. (See also: Is the Bearish Run Over for British Pound ETFs?)

This fund pays monthly distributions. Therefore, it is important to note that tax efficiency is an issue with FXB – all gains and distributions are treated as normal income for tax purposes. Performance wise, the Fund has been performing well over the past year with a return of 9.10%. However, longer term, it has been more mixed, with a three-year return of -5.01% and a five-year return of -3.98%.

2. iPath GBP/USD Exchange Rate ETN (GBB)

  • Issuer: Barclays Bank
  • Assets under Management: $4.4 million
  • 2017 YTD Performance: 7.92%
  • 2018 YTD Performance: 6.64%
  • Expense Ratio: 0.40%
  • Price: $37.40

GBB is the other player offering pure exposure to the British pound space, but with a smaller asset base, it comes with some greater trading risks for the investor. Average daily volumes are around 448 shares, so liquidity can be a problem. Moreover, as is the case with FXB, gains from GBB are taxed as ordinary income.

This fund is structured as an exchange-traded note (ETN), which is a debt security, and it carries all the risks associated with Barclays as the issuing bank, so it is wise to tread carefully if you are thinking of jumping in. YTD this fund has also posted a significant gain of 7.92%. One-year, three-year and five-year returns are 7.92%, -5.40% and -4.01%, respectively.

3. ETFS Short NZD Long GBP (NZGB)

  • Issuer: Barclays Bank
  • Assets under Management: GBP161,820
  • 2017 YTD Performance: 7.38%
  • Expense Ratio: 0.39%
  • Price: GBP31.55

In the U.K. ETF Securities (ETFS) also offers a comprehensive list of ETFs allowing investors to take various positions on the British pound. In 2017 its top performing fund has been the ETFS Short NZD Long GBP fund. This fund had a 2017 YTD return of 7.38% but has been little changed so far in 2018.

This Fund uses an index replication strategy linked to the MSFX Short New Zealand Dollar/GBP Index. By taking the short position on the New Zealand dollar and long position on the British pound it seeks to benefit from a strengthening GBP versus the NZD. Holdings in the Fund include unfunded swaps with a counterparty. Daily cash payments between ETFS and the counterparty are transacted based on the Fund’s holdings and values of the underlying instruments.

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