Is The ECJ Ruling Good News For British ETFs?

The European Court of Justice (ECJ) ruled that national and regional parliaments of the European Union cannot block key components of major trade deals. This ruling comes after the European Commission approached ECJ to test its authority to negotiate trade deals with Singapore.

This comes as a blessing for the U.K. as getting all aspects of a deal approved in national parliaments could be a time consuming process. Though ratification by member countries is still required in some areas, the integral parts of the free trade deal could come into force without much hindrance from national and regional parliaments.

The difficulties that ratification by all member countries causes are evident from the EU-Canada trade deal. Belgium, for example, requires local parliaments to agree to a deal before ratifying it on a national level. The agreement between the European Union and Canada was almost thrown off the table as the small state of Wallonia in Belgium opposed the deal to protect its local interests. However, the conflict was later resolved.

However, the EU-Singapore deal is of a relatively smaller scale than the potential EU-UK deal. Over 40% of UK exports are sent to other EU member countries, which is a considerably large proportion of total trade. Therefore, though the EU-Singapore pact requires approval of all nations of the bloc on a mere two provisions, the scope of the EU-UK deal is much bigger. Hence, though the ruling is certainly a positive for Brexit implementers as the European commission has more expansive powers now, it is still difficult to predict what this deal would lead to.

Let us discuss a few ETFs focused on providing exposure to the United Kingdom (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 the currency fluctuations between the dollar and the British pound.

The fund has AUM of $93.89 million and charges 49 basis points in fees per year. Financials, Consumer Staples, and Energy are the top three sectors of this fund with 21.53%, 17.54%, and 13.97% allocation, respectively (as of May 15, 2017). The top three holdings for EWU are HSBC Holdings (LON:HSBA) PLC, British American Tobacco (LON:BATS) PLC, and Royal Dutch Shell (LON:RDSa) PLC, with 7.10%, 5.26%, and 4.92% allocation, respectively (as of May 15, 2017). It returned 7.82% in the year-to-date time frame and 7.44% in the past one year (as of May 16, 2017). HEWU currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Top ETF Stories of April 2017).

WisdomTree United Kingdom Hedged Equity Fund DXPS

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

The fund has AUM of $18.42 million and charges 48 basis points in fees per year. Consumer Staples, Financials, and Energy are the top three sectors of this fund with 17.44%, 17.32%, and 16.09% allocation, respectively (as of May 16, 2017). The top three holdings for the fund are HSBC Holdings PLC, British American Tobacco PLC, and Royal Dutch Shell PLC, with 7.13%, 5.29%, and 4.95% allocation, respectively (as of May 15, 2017). It returned 5.49% in the year-to-date time frame and 5.13% in the past one year (as of May 16, 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 U.K. equities while also hedging the currency risk.

The fund has AUM of $5.41 million and charges 45 basis points in fees per year. Financials, Consumer Staples, and Energy are the top three sectors of this fund with 21.59%, 17.60%, and 14.01% allocation, respectively (as of May 15, 2017). The top three holdings for the fund are Rio Tinto (LON:RIO) PLC, AstraZeneca PLC, and British American Tobacco PLC, with 5.77%, 5.61%, and 5.57% allocation, respectively (as of May 15, 2017). It returned 6.46% in the year-to-date time frame but lost 1.13% in the past one year (as of May 16, 2017). DBUK currently has a Zacks ETF Rank #3 with a Medium risk outlook.

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