2. Fundamentally Speaking, U.K Stocks May Be More Attractive Than U.S. Stocks. According to Morningstar, iShares MSCI United Kingdom (EWU) trades at 12.4 times forward earnings with an annualized dividend yield of 3%. That makes EWU roughly 16% less expensive than the S&P 500, though EWU offers a 100 basis points of additional annual cash flow. EWU has plenty of comparable big-name multinationals as well, including GlaxoSmithKline, Brittish American Tobacco, Diageo and Vodafone. Others may find value in the 20% consumer staples weighting since it is greater than the S&P 500.
3. The United Kingdom Is Not A Member of the Euro-Zone. It is true that funds like iShares MSCI United Kingdom (EWU) cannot entirely escape the drag of a 17-member monetary bloc in its backyard. On the other hand, the UK is free to act in its own best interest whereas the monetary union is strapped with scores of debt-laden recessionary economies in need of constant bailouts. Moreover, the correlation between EWU and the iShares European Monetary Union (EZU) is not particularly strong at .68. In other words, if you’re genuinely intrigued by the idea of adding a foreign developed stock asset to your portfolio, selecting a large individual economy that resembles the United States should result in less baggage and better risk-reward potential.
Gary Gordon is president of Pacific Park Financial, Inc.