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U.K. GDP Edges up in Q2: ETFs in Focus

U.K.’s economy grew a modest 0.3% in the second quarter of 2017 compared with 0.2% in the first quarter. U.K.’s economy was the worst performer in the European Union in the first quarter.


The growth in the second quarter was primarily driven by retail and film industries. While production and construction had a negative impact on the country’s GDP, agriculture had no impact.


The weak GDP growth strengthens the possibility of interest rates remaining unchanged when the Bank of England (BOE) meets next month. The economy’s growth has been paltry this year owing to increased inflation and a wage squeeze after the decline in the pound post the Brexit referendum. This has been affecting the spending abilities of consumers and also raising import prices (read: UK Consumer Spending and Industrial Output Decline: ETFs in Focus).


The International Monetary Fund (IMF) downgraded its UK growth forecast to 1.7% for 2017 compared with its earlier forecast of 2%. The downgrade was primarily due to Brexit uncertainty as it clouds the GDP outlook for U.K.


Let us now discuss a few currency-hedged ETFs focused on providing exposure to the U.K. (see all European Equity ETFs here).


iShares Currency Hedged MSCI United Kingdom ETF HEWU


For investors looking to gain exposure to the British markets in particular, this fund is one of the most popular pure-play options available. It seeks to maintain equity exposure to its un-hedged version EWU, while hedging away currency fluctuations between the dollar and the British pound (read: Theresa May Spends 1B Pounds to Keep Majority: ETFs in Focus).


The fund has AUM of $21.34 million and charges 49 basis points in fees per year. Financials, Consumer Staples and Energy are the top three sectors of this fund with 22.67%, 18.68% and 13.52% allocation, respectively (as of July 25, 2017). The top three holdings for EWU are HSBC Holdings PLC, British American Tobacco PLC and Royal Dutch Shell PLC, with 7.80%, 6.31% and 4.78% allocation, respectively (as of July 25, 2017).  It has returned 4.95% year to date but has lost 2.94% in the last one year (as of July 26, 2017). HEWU currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


WisdomTree United Kingdom Hedged Equity Fund DXPS


This fund seeks to provide exposure to the U.K. dividend paying companies with an export tilt, while also hedging the currency risk.


The fund has AUM of $15.78 million and charges 48 basis points in fees per year. Consumer Staples, Energy and Financials are the top three sectors of this fund with 18.41%, 15.06% and 14.88% allocation, respectively (as of July 26, 2017). The top three holdings for the fund are Vodafone Group PLC, Royal Dutch Shell PLC and British American Tobacco PLC with 5.13%, 5.11% and 4.92% allocation, respectively (as of July 26, 2017). It has returned 4.29% year to date but has lost 6.03% in the last one year (as of July 26, 2017). DXPS currently has a Zacks ETF Rank #3 with a Medium risk outlook.


Deutsche X-trackers MSCI United Kingdom Hedged Equity ETF DBUK


This fund seeks to provide exposure to the U.K. equities while also hedging the currency risk.


The fund has AUM of $5.40 million and charges 45 basis points in fees per year. Financials, Consumer Staples and Energy are the top three sectors of this fund with 23%, 18% and 14% allocation, respectively. The top three holdings for the fund are HSBC Holdings PLC, British American Tobacco PLC and Royal Dutch Shell PLC, with 7.81%, 6.31% and 4.78% allocation, respectively (as of July 25, 2017).  It has returned 6.71% year to date but has lost 10.47% in the last one year (as of July 26, 2017). DBUK currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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DEUTS-XT MS UK (DBUK): ETF Research Reports
 
ISHARS-CHM UK (HEWU): ETF Research Reports
 
WISDMTR-UK HEQ (DXPS): ETF Research Reports
 
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Zacks Investment Research
 
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