Ride the British Economic Uptrend with These 2 ETFs - ETF News And Commentary


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Growth in most of the Euro zone nations looks murky yet again. The European Central Bank (ECB) recently slashed its benchmark lending rate from 0.25% to another historic low of 0.15% in order to boost economic growth and fight deflationary risks. In fact, the ECB went ahead and lowered the deposit rates to -0.1% becoming the first central bank to resort to negative interest rates.

The bank's decision is indeed plausible given the fact that the pace of Euro zone's recovery is slowing (read: 3 European ETFs to Buy After ECB Action ).

There seems to be an exception to the case in Europe though. One of the region's biggest economies, the UK, is not doing too badly and is actually better placed than most developed nations. Though the UK has been blamed for taking more time than other advanced economies to come back to its pre-recession levels, its growth rate is better than other developed nations now.

In fact, recession within the British economy during the period 2008-2009 was not as deep as feared, as per the latest figures from the Office for National Statistics . Among others, the report revealed that during 2009 UK's GDP shrank by 4.1% rather than the previously reported figure of 5.2%.

An Improving Economy

Britain's economy is indeed showing signs of a balanced recovery. The country's GDP expanded by 0.8% during the first quarter, faster than the 0.7% growth during the preceding quarter, led by strong business investment. Investments rose by 5% during Q1 - representing the fifth consecutive increase and also the longest period of expansion in 16 years.

Moreover, the manufacturing and construction sector witnessed strong growth with the services sector being the strongest driver in the first quarter. The contribution from the services sector is important since it accounts for more than three-quarters of UK's economic growth.

Also, UK's current account deficit has narrowed to £18.5 billion during the first quarter as compared to £23.5 billion in the previous three months (read: Time to Bet on the British ETF? ).

Apart from these improving economic indicators, consumer confidence in the UK hit the highest level in more than nine years during the month of June, according to a survey by global market researchers GfK .

Moreover, UK business confidence is presently at the highest level in at least 22 years , with companies now expecting higher sales and profits in the upcoming months. This clearly signals improving trends with corporations expected to increase staff count going forward, suggesting employment growth.

Rating Upgrades

Taking the cue, rating agency Standard & Poor's recently upgraded the rating of Britain to AAA and commented that its financial sector is presently in a much stronger position, though it also cautioned that the recovery could lose steam if the country opted to push further away from the European Union.

Investment banking firm Goldman is also quite upbeat about the prospects of the UK economy expecting it to expand by 3.4% this year. Goldman also expects inflation to subside going forward and has increased its growth forecast for 2015.

Moreover, Fitch recently revised its outlook for the country. The rating agency now expects UK to expand by 3%, up from its earlier forecast of 2.5%. The new rate is indeed higher than Fitch's growth forecast for the global economy.

As things look bright just across the Atlantic, we have highlighted two ETFs below which might perform well if the British uptrend continues (see all European Equity ETFs here ):

iShares MSCI UK Index Fund ( EWU )

EWU is the largest and the most popular British ETF having an AUM of about $4.1 billion and trading an average daily volume of 2.6 million shares.

It tracks the MSCI United Kingdom Index holding a basket of 113 stocks. The index holds some of the biggest names in the UK equity markets such as, HSBC Holdings plc, BP plc, Royal Dutch Shell and GlaxoSmithKline plc.

Financials, energy and consumer defensive sectors dominate the fund, forming more than half of the total fund assets. The fund currently carries a Zacks ETF Rank #2 or Buy rating.

The ETF charges 51 basis points in fees and expenses per year and has returned 19% in the past one year.

First Trust United Kingdom AlphaDEX ( FKU )

Launched in February 2012, FKU tracks the Defined United Kingdom Index and employs the AlphaDEX methodology of stock selection.

According to this methodology, stocks are chosen from the S&P United Kingdom BMI universe and ranked on the basis of various fundamental growth and value factors (read: Beat the market with fundamentally strong ETFs ).

The fund holds 76 stocks with Derwent London plc, Great Portland Estates plc and St James's Place plc being the top three holdings.

However, the fund is little expensive and charges 80 basis points on account of its enhanced methodology. The fund has gained 27% in the past one year.

The fund currently has a Zacks ETF Rank #2 (Buy) rating, suggesting that it is expected to outperform the broader markets going forward.

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ISHARS-UTD KING (EWU): ETF Research Reports

FT-UTD KINGDOM (FKU): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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