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3 U.K. ETFs for Q3 2022

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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 economy is beginning to recover as the vaccine rollout reaches more citizens.

After falling 9.4% in 2020, U.K. gross domestic product (GDP) began to recover last year from the initial shock of the pandemic, according to the U.K.’s Office for National Statistics (ONS). ONS estimates that GDP rose by 7.5% for all of 2021. But now the concern among U.K. policymakers is how to tame inflation without simultaneously tipping the economy into recession.

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 broader U.S. market over the past year.
  • The three U.K. exchange-traded funds (ETFs), ranked by one-year trailing total return, are EWU, FKU, and EWUS.
  • The top holdings of these ETFs are Shell PLC, Anglo American PLC, and Meggitt PLC, respectively.

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 4.1% over the past 12 months, just below the S&P 500’s total return of 4.7%, as of May 4, 2022. The best-performing U.K. ETF for Q3 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 May 5, 2022.

  • Performance Over One-Year: 0.9%
  • Expense Ratio: 0.51%
  • Annual Dividend Yield: 2.68%
  • Three-Month Average Daily Volume: 5,416,495
  • Assets Under Management: $3.7 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: -17.8%
  • Expense Ratio: 0.80%
  • Annual Dividend Yield: 2.39%
  • Three-Month Average Daily Volume: 9,824
  • Assets Under Management: $78.4 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, materials, and consumer discretionary, which account for about half of the fund’s holdings. FKU’s top three holdings are Anglo American PLC (AAL:LON), a leading miner and producer of diamonds and other minerals; Rio Tinto PLC (RIO:LON), a mining company that explores for and processes mineral resources; and Centrica PLC (CNA:LON), an energy services company.

  • Performance Over One-Year: -24.6%
  • Expense Ratio: 0.59%
  • Annual Dividend Yield: 1.36%
  • Three-Month Average Daily Volume: 17,329
  • Assets Under Management: $67.3 million
  • Inception Date: Jan. 25, 2012
  • Issuer: BlackRock Financial Management

EWUS tracks the MSCI United Kingdom Small Cap Index, which gauges the performance of small-cap equities whose market caps represent the bottom 14% of the U.K. securities market. The market-cap-weighted ETF provides exposure to small publicly traded companies based in the U.K., making it an effective pure play on the U.K. economy. The sectors receiving the largest allocation in the fund include industrials, financials, and consumer discretionary. The fund’s top three holdings are Meggitt PLC (MGGT:LON), a supplier of components and sub-systems to the aerospace, defense, and selected energy markets; Rightmove PLC (RMV:LON), which manages a leading U.K. online real estate and property website; and RS Group PLC (RS1:LON), a distributor of industrial and electronics products.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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