How To Play The Pound And U.K. ETFs Now

|
Includes: DBUK, DXPS, FXB, GBB, HEWU
by: Zacks Funds

The British pound is now the worst-performing major currency in the world, thanks to growing Brexit concerns. The currency has continued to slide since the Brexit vote on June 23, while recently, the fall accelerated after the British PM Theresa May said she plans to pursue a "hard Brexit". It is now down almost 20% against the dollar since the vote.

The decline in currency has greatly benefited UK stocks, with the FTSE 100 rallying to near all-time high levels. Another reason for the rally in stocks is that Brexit did not trigger any systemic event.

While the decline in the currency makes British exports more competitive, it also increases the possibility of inflation, since imports become more expensive. Higher inflation could prevent the Bank of England from easing further to support the economy.

While it is difficult to predict how Brexit is going to play out in the longer term, it appears that the currency will remain under pressure at least in the near term, more so with the rising probability of a rate hike in the US.

As far as UK stocks are concerned, they look somewhat expensive now.

Biggest Winners: Currency Hedged UK ETFs

ETF Ticker Expense Ratio AUM YTD Return
iShares Currency Hedged MSCI United Kingdom ETF HEWU 0.45% $116.97 mil 13.80%
WisdomTree United Kingdom Hedged Equity ETF DXPS 0.48% $28.22 mil 17.26%
Deutsche X-trackers MSCI United Kingdom Hedged Equity ETF DBUK 0.45% $6.22 mil 12.83%

Biggest Losers: British Pound ETFs

ETF Ticker Expense Ratio AUM YTD Return
CurrencyShares British Pound Sterling Trust ETF FXB 0.40% $256.78 mil -17.91%
iPath GBP/USD Exchange Rate ETN GBB 0.40% $3.83 mil -17.84%

Original Post