iShares MSCI United Kingdom
ETF (EWU) is enjoying renewed popularity. But much like the country it focuses on, it has encountered some turbulence over the past year or so, with the uncertainties surrounding the U.K.’s pending exit from the European Union weighing on investors.
EWU is a $2.82 billion market-weighted fund, comprising mainly large U.K. companies. Like the British economy, it tilts toward finance, energy and consumer staples, with
British American Tobacco
Royal Dutch Shell
PLC among its top five holdings.
The fund had net inflows of about $575 million in the first seven months of this year, with a total return of 12.53% in that period. However, its performance since the Brexit referendum of June 23, 2016, hasn’t always been as positive, says
an iShares investment strategist at
the issuer of iShares funds. The fall in the value of sterling in the wake of the referendum, he says, prompted investors to favor the currency-hedged version of EWU, the
iShares Currency Hedged MSCI United Kingdom
“People wanted to keep a U.K. exposure, but to take the sterling view out of it,” Mr. Yadava says. Between the referendum and the end of last year, a net $44.7 million flowed out of EWU, which returned 6.91% over that period.
But this year, the tables have turned. Sterling has stabilized, drawing investors back into EWU.
The fund has benefited from the recent strength of the U.K. financial sector, Mr. Yadava says. In addition, the large-cap U.K. companies in its portfolio are internationally focused and so aren’t as affected as smaller companies might be by concerns about Brexit’s effect on the U.K. economy, he says.
“These are global brands, and they source their revenues predominantly from outside the U.K,” Mr. Yadava says.
But he warns that there is uncertainty looking forward, particularly over the impact of Brexit on international business. For instance, it is unclear if U.K.-based financial firms will be able to provide their services as freely across Europe as they currently do once the country leaves the EU.
Mr. Cowan is a writer in Northern Ireland. He can be reached at firstname.lastname@example.org.
Appeared in the August 7, 2017, print edition.