British stocks have been considered persona non grata by many investors ever since the Brexit vote to pull the U.K. from the European Union, with many fearful that the U.K.’s economy would sputter and that trading partnerships would fall.
However, many analysts warming up to the idea of British outperformance amid the Brexit, the region has recovered and buying British stocks makes sense again. There are plenty of exchange-traded funds that allow investors in the U.S. to put some money into the British economy and get some diversification at the same time.
iShares MSCI United Kingdom ETF (ticker: EWU). iShares’ EWU is by far and away the most popular proxy for British stocks, boasting $2.6 billion in net assets — about $1.8 billion more than the next closest fund. This is a big, blue-chip fund filled with familiar names, such as Royal Dutch Shell ( RDS.A), AstraZeneca ( AZN), Guinness and Smirnoff parent Diageo ( DEO) and Unilever ( UL), which owns Dove skincare and Lipton tea brands, among others. While the fund is fairly balanced, EWU is heavy in financials (21.1 percent), consumer staples (17.8) and energy (13.9), but light on telecoms (4.7), utilities (4.2) and real estate (1.4). Expenses are 0.48 percent, or $48 annually per $10,000 invested.
iShares MSCI United Kingdom Small-Cap ETF (EWUS). iShares also offers the small-cap focused EWUS, which boasts 244 stocks that average just $2.2 billion in market capitalization versus EWU’s average of $45 billion. EWUS is plenty diversified, with publisher Informa representing the top weight at just 1.8 percent, and its sector blend includes 20 percent-plus weightings in industrials and discretionaries, as well as double-digit weights in financials and IT. What stands out about EWUS is that it can charge with the bulls (39 percent versus 20 percent for the EWU in 2013), but also can hold up well when larger British stocks are struggling (up 8 percent vs a 7 percent loss for the EWU in 2015). Expenses are 0.59 percent .
[Read: After Brexit, Investors Should Keep Calm and Carry On.]
First Trust United Kingdom AlphaDEX Fund (FKU). First Trust’s FKU takes an interesting path to construct its portfolio. For one, it limits selections to only Nasdaq stocks, eliminating a host of securities, then are ranked on growth factors such as sales expansion, as well as value factors such as book-price. The top 75 stocks are then further sorted into quintiles to determine weights. Top holdings still are small, with sports clothing retailer JD Sports Fashion and residential property developer Barratt Developments making up just 2.5 percent of the fund apiece. This fund is very overweight consumer discretionary at nearly 30 percent of the fund, with industrials, materials and financials garnering double-digit weights. Expenses are 0.8 percent.
iShares Currency Hedged MSCI United Kingdom ETF (HEWU). HEWU, along with EWU and EWUS, gives iShares the full podium of the three largest British funds, and this one’s a doozy. The HEWU seeks to invest in British stocks, but with a currency hedge to dull the impact of the pound on equity returns — done by simply holding EWU for equity exposure, then using forward contracts to achieve the hedging effect. This twist on British stocks is beneficial amid a weak and/or declining pound. To wit, iShares’ hedged product has gained more than 22 percent over the past year versus just 10 percent returns for the EWU amid a roughly 12 percent decline in Britain’s currency. Expenses are 0.49 percent.
WisdomTree United Kingdom Hedged Equity Fund (DXPS). However, you can’t have currency-hedged products without bringing WisdomTree Investments ( WETF) into the picture. Like HEWU, the WisdomTree’s DXPS uses forward currency contracts to achieve the hedge, but it holds individual stocks for the equity portion of the portfolio. The most significant exposure differences include a smaller weight in financials (17.5 percent), more energy (15.7 percent) and more materials (11.1 percent), though the top 10 holdings have a lot of overlap, including British American Tobacco ( BTI), AstraZeneca and BP ( BP). DPXS also is a little older than the HEWU, and has performed better over HEWU’s short life. Expenses are 0.48 percent.
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SPDR MSCI United Kingdom StrategicFactors ETF (QGBR). QGBR’s screens aim to build a portfolio through value, quality and low volatility, resulting in a set of 109 stocks averaging nearly $50 billion in market cap, and yielding about 3.6 percent to boot. The fund is similar to EWU in that it holds significant amounts of financials and consumer staples (roughly 17 percent each) with top holdings like HSBC Holdings ( HSBC) and BP, and performance has been nearly identical since QGBR’s inception in 2014. However, despite offering equal performance for a much cheaper 30 basis points in annual expenses, SPDR’s fund has amassed a mere $2.45 million in assets.
ProShares MSCI Europe Dividend Growers ETF (EUDV). A number of funds that aren’t dedicated to the U.K. still are teeming with British stocks. Take the EUDV, for instance. EUDV is a dividend-growth-centric ETF that only holds companies that have raised payouts for 10 consecutive years or more — and nearly half of the fund is invested in British stocks such as satellite communications services provider Inmarsat, and testing and inspection company Intertek. However, that large British exposure is interspersed with solid weightings in Swiss (13.2 percent) and French (11.2) stocks, among others. A final note: Like many dividend growth funds, the yield is modest at 2.3 percent. Expenses are 0.55 percent.
[Read: Wall Street Is Overreacting Over Brexit.]
Vanguard FTSE Europe ETF (VGK). Vanguard’s VGK is the largest European-focused ETF on U.S. markets, though it’s far from the most diversified — the fund is excruciatingly overweight in just handful of countries, starting with the U.K. at 30 percent. Familiar tickers RDS.A, HSBC and BTI pepper the top 10 holdings. Germany, France and Switzerland combine for another 40 percent of the fund, leaving 30 percent split among 11 other countries. Still, VGK has its qualities, such as a wide investment base (1,249 stocks), blue-chip nature (average $38 billion market cap), good dividend (3.3 percent) and dirt-cheap expense ratio of just 10 basis points.
iShares MSCI Europe Financials ETF (EUFN). Lastly, while the idea of European banks probably turns your thoughts to Switzerland, the financial-focused EUFN is most heavily invested in the U.K. British stocks make up nearly 30 percent of this cap-weighted fund, and naturally HSBC earns the top weight at a lofty 9.5 percent of the ETF’s assets. But the fund is chock full of other big British financials, such as insurer Prudential Financial ( PRU), diversified financial Lloyd’s Banking Group ( LYG) and bank stock Barclays ( BCS), which also holds the distinction of being the last sponsor of England’s Premier League. Expenses are 0.48 percent.
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9 Ways to Invest in British Stocks, Despite Brexit originally appeared on usnews.com
