The iShares MSCI United Kingdom ETF’s (NYSEArca: EWU), the largest U.K. exchange traded fund listed in the U.S., is up 3.7% since Prime Minister David Cameron swept to victory in U.K. elections earlier this month.
With conservatives strengthening their position in British parliament, winning 323 seats, some market observers believe this now is the time to consider U.K. equities and the related ETFs.
“Investor euphoria in the aftermath of the astonishing Conservative (Tory) party triumph in the May 7th general election is underpinning equity market returns and has reversed some of the losses in UK sovereign debt (gilts) that accrued ahead of the ballot. In defiance of pre-election opinion polls conducted before the nationwide vote earlier this month, the Tories secured a slim, six-seat parliamentary majority in the House of Commons at the expense of both their Labor and Liberal-Democratic opponents,” according to S&P Capital IQ.
The $3 billion EWU has a whopping 7.1% trailing 12-month yield, according to iShares data.
It does pay to remember that the U.K. is one of the best, if not the best, ex-U.S. dividend market. In 2014, U.K. firms once again offered excellent dividend growth. Payouts there surged 31% to $135 billion, according to Henderson Global Investors. [Good Timing for This new ETF]
S&P Capital IQ has a marketweight rating on EWU, but if the pound loses steam without dragging U.K. stocks lower, the Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK) and the WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS), two of the more unheralded members of the rapidly growing currency hedged ETF group, merit consideration. Those ETFs are each up more than 8% this year. [Opportunity With Sterling Hedged ETFs]
On valuation, U.K. stocks are pricier than some major Eurozone markets, but attractively valued relative to other large developed markets, including the U.S.
“The FTSE 100’s one-year forward, positive-adjusted price earnings multiple (p/e) of 16.8x is on par with Spain, more expensive than that of the French CAC’s and German DAX’s p/e ratios and cheaper than the multiples of their Danish, Dutch, Italian, Portuguese, Canadian, US, Japanese and Swiss rivals despite the fact that the FTSE 100’s p/e exceeds its twenty-two year historical average (16.0x). On a relative valuation basis, FTSE 100 shares appear inexpensive by comparison with the S&P Europe 350 at -0.3,” said S&P Capital IQ.
Investors looking for a pure proxy on the FTSE 100 can consider the Recon Capital FTSE 100 ETF (NasdaqGS: UK), the first U.S.-listed ETF to track the U.K.’s benchmark FTSE 100 index.
All of the FTSE 100’s, and in turn UK’s, top 10 holdings trade in New York. That group, which combined for about 39% of the index’s weight at the end of March, includes familiar names such as HSBC (NYSE: HBC),BP (NYSE: BP) Royal Dutch Shell (NYSE: RDS-A) and GlaxoSmithKline (NYSE: GSK). [Finally, a FTSE Tracking ETF in the U.S.]
iShares MSCI United Kingdom ETF