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UK Consumer Spending and Industrial Output Decline: ETFs in Focus

Consumer spending in the U.K. declined to an almost four-year low, per Visa’s consumer spending index, given that people are reluctant to spend on items they deem non-essential. Factors including rising prices and stagnant wages have contributed to the decline.


Household spending declined 0.3% year over year in the second quarter of 2017 compared with a 0.9% in May. While store spending declined 2.4% annually in June 2017, e-commerce spending grew 2.9%.


Spending on essentials such as food and drink and health and education increased 1.9% and 2.2%, respectively in June 2017. However, spending on household goods and recreation and culture declined 3.4% and 1.2%, respectively.


Adding to the woes, production in the U.K. declined 0.1% in May 2017 on a monthly basis, while the industrial output declined 0.2%. Moreover, construction output fell 1.2% in May on a monthly basis.


If this was not enough, U.K.’s trade deficit increased 1 billion pounds to 3.1 billion pounds on a monthly basis in May.


These headwinds have further clouded the possibility of a rate hike by Bank of England later this year.


Let us now discuss a few ETFs focused on providing exposure to the UK (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 $21.07 million and charges 49 basis points in fees per year. Financials, Consumer Staples and Energy are the top three sectors of this fund with 22.38%, 17.47% and 13.56% allocation, respectively (as of July 6, 2017). The top three holdings for EWU are HSBC Holdings PLC, British American Tobacco PLC and Royal Dutch Shell PLC, with 7.69%, 5.14% and 4.83% allocation, respectively (as of July 6, 2017).  It has returned 5.99% year to date and 14.64% in the last one year (as of July 7, 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 $15.57 million and charges 48 basis points in fees per year. Consumer Staples, Energy and Financials are the top three sectors of this fund with 18.47%, 15.02% and 14.62% allocation, respectively (as of July 7, 2017). The top three holdings for the fund are Vodafone Group PLC, Royal Dutch Shell PLC and HSBC Holdings PLC with 5.18%, 5.09% and 4.92% allocation, respectively (as of July 7, 2017). It has returned 5.72% year to date and 13.44% in the last one year (as of July 7, 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 $5.32 million and charges 45 basis points in fees per year. Financials, Consumer Staples and Energy are the top three sectors of this fund with 22%, 18% and 13% allocation, respectively. The top three holdings for the fund are HSBC Holdings PLC, British American Tobacco PLC and Royal Dutch Shell PLC, with 7.70%, 5.14% and 4.83% allocation, respectively (as of July 6, 2017).  It returned 4.29% year to date but lost 8.36% in the last one year (as of July 7, 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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