As one of the largest economies in the world, the United Kingdom has long been a major focus of American investors. The nation’s economy contracted sharply in 2020 due to the disruption stemming from the COVID-19 pandemic. But the U.K. economy is beginning to recover as the vaccine rollout reaches more citizens.
Investors looking to profit on the growth in the U.K. economy 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 slightly underperformed the broad U.S. market over the past year.
- The three U.K. exchange-traded funds (ETFs), ranked by one-year trailing total return, are EWU, FLGB, and FKU.
- Investing in a U.K. ETF provides exposure to a diversified basked of equities based in the country.
There are three 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).
The U.K. equity market, as measured by the MSCI United Kingdom Index, has slightly underperformed the broader U.S. equity market. The index has provided a total return of -2.7% over the past 12 months, just below the S&P 500’s total return of -2.6%, as of Aug. 12, 2022. The best-performing U.K. ETF for Q4 2022, based on performance over the past year, is the iShares MSCI United Kingdom ETF (EWU).
We examine the three U.K. ETFs below. All numbers are as of Aug. 12, 2022.
- Performance Over One Year: -2.52%
- Expense Ratio: 0.51%
- Annual Dividend Yield: 2.68%
- Three-Month Average Daily Volume: 3,780,106
- Assets Under Management: $3.6 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. It’s a pure play on the U.K. economy. The fund’s largest sector allocations are in consumer staples, financials, and healthcare, which 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 HSBC Holdings PLC (HSBA:LON), a provider of banking and financial services.
- Performance Over One Year: -5.13%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 2.76%
- Three-Month Average Daily Volume: 303,455
- Assets Under Management: $535.9 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 targeted exposure to mid- and large-sized companies in the U.K. The fund’s largest sector allocations are in consumer staples, financials, and healthcare, which make up almost half of the fund’s assets. Like EWU, the top holdings of FLGB are Shell, AstraZeneca, and HSBC.
- Performance Over One Year: -22.10%
- Expense Ratio: 0.80%
- Annual Dividend Yield: 2.39%
- Three-Month Average Daily Volume: 9,553
- Assets Under Management: $70.7 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 the top 75 stocks from the NASDAQ United Kingdom Index that meet a set of growth and value criteria. The ETF provides exposure to U.K. equities of various market capitalizations. The sectors that receive the largest exposure in the fund are financials, consumer discretionary, and materials, which account for about half of the fund’s holdings.
FKU’s top three holdings are Beazley PLC (BEZ:LON), an insurance and reinsurance company; 3i Group PLC (III:LON), a private equity firm; and SEGRO PLC (SGRO:LON), an industrial real estate investment trust (REIT).
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