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EWU: I Was Much Too Optimistic, Uncertainty To Remain A Headwind


  • EWU, the iShares MSCI United Kingdom ETF, has been caught up in the recent sell-off, and it has seen a drop close to 15% since my last review.
  • With ongoing political uncertainty surrounding Brexit, EWU is not for the faint of heart. However, British equities do remain attractively priced compared to their European counterparts.
  • UK retail sales surpassed expectations in January. Similarly, business confidence is up since the Tory election win. However, these developments could falter if trade progress is not made.

Main Thesis

The purpose of this article is to evaluate the iShares MSCI United Kingdom ETF (NYSEARCA:EWU) as an investment option at its current market price. While I was optimistic on British equities heading in to 2020, EWU has been under pressure since mid-January.

The recent election provided some clarity on Brexit, but negotiations continue to make little substantive progress, and that is clouding the outlook for what a post-Brexit United Kingdom will look like. Fortunately, optimism among consumers and businesses remains relatively high. This has supported surprisingly strong retail figures and a positive outlook for business investment. However, continued uncertainty is likely to cap this momentum going forward. While British stocks do appear cheap, compared to their U.S. and European counterparts, I see the chances of out-performance as quite slim as we move deeper in to the year.


First, a little about EWU. The fund's stated objective is "to track the investment results of an index composed of U.K. equities." The fund only offers exposure to large and mid-sized companies that are based in the United Kingdom. EWU is currently trading at $28.94/share and yields 4.87% annually. Looking back on my coverage of EWU, I recommended getting in to the fund late last year, and that trade generated some alpha in the short-term. However, I reiterated a bullish stance as 2020 got underway, as I saw the Tory victory in December elections as a tailwind for British equities. This call proved incorrect, as EWU has seen more than its share of selling since the market correction got underway, as shown below:

Source: Seeking Alpha

Given this sharp drop, I wanted to give an updated review of EWU, and discuss where my thinking erred in January. After review, while some may see the broad market's decline as a buying opportunity, and I would as

This article was written by

Dividend Seeker profile picture
CEF/ETF income and arbitrage strategies, 8%+ portfolio yields

I've been in the Financial Services sector since 2008, which unsurprisingly gives me an invaluable insight in how markets can turn. I was a D1 athlete in college (men's tennis), where I studied Finance. I also have my MBA in Finance.

My readers/followers can trust that I won't pump any investment nor discuss a topic I don't genuinely follow and research. In that spirit, I list my portfolio here for transparency

Broad market: VOO; QQQ; DIA, RSP



Dividends: DGRO; SDY, SCHD

Municipals/Debt Funds: NEA, PML, PDO, BBN


Cash position: 30%

Analyst’s Disclosure: I am/we are long EWU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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