U.K. Trade Deficit Widens: ETFs In Focus

Trade deficit of U.K. increased in June owing to falling export volumes and rising imports despite the slump in sterling.

The trade deficit increased to 12.7 billion pounds in June from 11.3 billion pounds in May. Per the Office for National Statistics (ONS), exports declined 2.8% and imports increased 1.6%. The figure beat economists’ forecasts of a deficit of 11 billion pounds for the month.

Exports to EU member countries rose by 2.7% but those to non-EU countries declined by 7.9%. This indeed is a scary result, as it shows that trade with the EU is becoming a more integral part of the overall trade numbers for the U.K.

In the second quarter of 2017, trade deficit increased 0.1 billion pounds on a sequential basis to settle at 8.9 billion pounds, where imports increased 4.8% while exports increased 5%.

U.K.’s economy grew a modest 0.3% in the second quarter of 2017 compared with 0.2% in the first. The country’s economy was the worst performer in the European Union in the first quarter (read: U.K. GDP Edges up in Q2: ETFs in Focus).

Consumer Confidence in the U.K. increased marginally to 107.3 in July 2017 from 107.1 in June, according to a report from YouGov and the Centre for Economic and Business Research. A reading above 100 suggests that a greater number of consumers are confident than not. However, per Bloomberg, the index has not recorded a back-to-back reading below 108 since 2013 (read: U.K. Consumer Confidence Steadies: ETFs in Focus).

The International Monetary Fund (IMF) downgraded U.K.’s growth forecast to 1.7% for 2017 from its earlier forecast of 2%. The downgrade was primarily due to Brexit uncertainty, as it clouds the GDP outlook for U.K.

Let us now discuss a few currency-hedged ETFs focused on providing exposure to the U.K. (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.

The fund has AUM of $18.86 million and charges 49 basis points in fees per year. Financials, Consumer Staples and Energy are the top three sectors of this fund with 22.23%, 18.30% and 14.03% allocation, respectively (as of August 9, 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 7.81%, 5.88% and 5.04% allocation, respectively (as of August 9, 2017). It has returned 3.18% year to date but has lost 6.45% in the last one year (as of August 10, 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 $14.55 million and charges 48 basis points in fees per year. Consumer Staples, Energy and Financials are the top three sectors of this fund with 18.19%, 15.76% and 15.01% allocation, respectively (as of August 10, 2017). The top three holdings for the fund are Royal Dutch Shell PLC Class B, Vodafone Group PLC (LON:VOD) and Royal Dutch Shell PLC Class A with 5.45%, 5.26% and 5.14% allocation, respectively (as of August 10, 2017). It has returned 2.02% year to date but has lost 9.38% in the last one year (as of July 31, 2017). DXPS currently has a Zacks ETF Rank #3 with a Medium risk outlook.

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