The long-awaited Brexit deal is finally in place and while it still has to make its way through Parliament, it looks like a major source of uncertainty is finally being lifted off of the Eurozone. United Kingdom stocks are up about 1.5% in premarket trading and up just over 11% year-to-date.
If you’re interested in adding U.K. exposure to your portfolio, there’s a few ways to go about it.
Most Popular – iShares MSCI United Kingdom ETF (EWU)
There really isn’t a great deal of ETF assets committed to the U.K. but, at $2.2 billion, EWU is the easily the largest. It’s almost entirely large-caps but its highest allocations belong to the financial and energy sectors so there’s some added risk here. If you’re looking for broad exposure to this region, this is probably the best option since it’s easily the most liquid option making it easy to get in and out of your position without incurring huge costs.
Cheapest – Franklin FTSE United Kingdom ETF (FLGB)
Essentially the same fund as EWU, FLGB is part of Franklin’s ultra-low fee ETF lineup that it debuted a couple years ago. It comes with an expense ratio of just 0.09%, almost unheard of for such a niche product. It’s great as a longer-term holding but it also has just $28 million in assets making trading costs potentially higher.
A Little More Risky – iShares MSCI United Kingdom Small Cap ETF (EWUS)
Despite the name, EWUS actually has a lot of assets in mid-caps making it not quite as risky as it might seem. Whereas EWU has its largest allocations to financials and energy companies, EWUS is more heavily weighted to industrials and consumer discretionary stocks and has just 15% of assets dedicated to the financial/energy combo. The U.K. is one of the few markets where small-caps have actually outperformed large-caps in recent years and the Brexit deal probably gives them a higher short-term return potential.
Eliminate Currency Risk – iShares Currency Hedged MSCI United Kingdom ETF (HEWU)
HEWU is identical to EWU but lays forward currency contracts on top of the equity exposure. As the dollar has been steadily appreciating over the past year, HEWU has been outperforming EWU. That could very well be changing over the near-term as the pound has been rising again on the Brexit news. If you believe the pound will remain strong against the dollar, it’ll be better to go with EWU over HEWU.
Dividend Focus – ProShares MSCI Europe Dividend Growers ETF (EUDV)
This fund looks for dividend growth stocks all across Europe but it’s currently got between 40-50% of assets dedicated to the United Kingdom. This isn’t necessarily a high yield option though. The dividend yield has been fairly steady in the 2.0-2.5% range and, like many international dividend ETFs, isn’t fairly inconsistent in its quarterly distributions. Still, this makes for an interesting option if you’re concerned about a global economic slowdown affecting the European equity markets.
Play The Pound – Invesco CurrencyShares British Pound Sterling Trust (FXB)
I mentioned earlier that the pound has been rising since the Brexit deal became more likely. If you want to bet on an appreciating pound but want to stay away from equities, FXB is your choice.
What do you think? Are you considering overweighting United Kingdom stocks? Comment down below!