Growing Brexit Debate Brings ETFs In Focus

Meanwhile, several leaders from Germany, Ireland, the Netherlands and Spain and other EU countries have issued a series of warnings about the economic consequences of a Brexit. Apart from that, the Federal Reserve chair Janet Yellen has warned that Brexit could have significant economic repercussions for the U.S.

Many market participants believe a Brexit would lead to a weaker currency owing to worries about Britain's £229 billion annual trade with the EU, which could suffer if new trade barriers are raised. One of the major advantages of remaining with the EU is free trade between member nations, which makes exporting goods to other EU countries easier and cheaper for British companies. Thus, Brexit could have a negative impact on Britain’s GDP. Lower GDP growth and tougher export conditions would hit several sectors like retail and financial services among others and therefore have an unfavorable impact on British equities.

On the other side of the coin, the country could form deeper ties with other countries outside the EU. However, it can’t be exactly predicted what would happen if Britain exits the EU, as there has been no precedence.

Whether the UK will ultimately choose Brexit or select to remain in the EU remains to be seen. But polls and political propaganda are likely to continue to stimulate uncertainty in the short term. In this scenario, we highlight three ETFs that are primarily exposed to British equities and two sterling currency funds, which are likely to be on investors’ radar in the coming days (see: all the European Equity ETFs here).
iShares MSCI United Kingdom ETF (EWU - ETF report)
This product tracks the MSCI United Kingdom Index. In total, it holds 116 securities with almost 40% of its assets allocated to the top 10 holdings. EWU is popular and actively traded with AUM of $2.1 billion and average daily volume of more than 4.1 million shares. From a sector look, financials takes the top spot at 21.1% while consumer staples, energy, health care and consumer discretionary round off the top five. The ETF charges 48 bps in annual fees. It has a Zacks ETF Rank #3 or ‘Hold’ rating with a Medium risk outlook. The fund has gained 2.7% in the last one month (as of June 6, 2016).

First Trust United Kingdom AlphaDEX ETF (FKU - ETF report)
This fund provides exposure to 74 firms by tracking the NASDAQ AlphaDEX United Kingdom Index. The fund has amassed $158.1 million in its asset base while it has an average daily volume of more than 33,000 shares. None of the firms accounts for more than 3% of the total assets.

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