Great Britain heads to the polls on Thursday May 7 and the only certainty appears to be a raft of uncertainty. Prime Minister David Cameron is facing off against Labour Party leader Ed Miliband and Liberal Democrat Party leader Nick Clegg with a substantial part of the electorate still undecided.
“As many as 40 percent of British voters are undecided or could switch parties on election day, according to a ComRes survey, published at the end of March,” reports Chris Zappone for the Sydney Morning Herald.
The BBC reports no party is likely to claim an outright, resulting in a hung parliament. Great Britain’s parliament has 650 seats. http://www.bbc.com/news/election-2015-32578525
Uncertainty surrounding the election’s outcome could give way to opportunity with U.S.-listed exchange traded funds, including the newly minted Recon Capital FTSE 100 ETF (NasdaqGS: UK) and currency hedged ETFs, such as the Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK) and the WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS). [Sterling Hedged ETFs Shine]
Predictably, market observers have their preferred outcomes for Thursday’s U.K. electoral tussle.
“Over the past five years, David Cameron’s gutsy decisions and strong leadership have helped the U.K. economy emerge from the global recession in far better shape than the rest of Europe,” said Recon Capital’s Kevin Kelly.
Recon’s UK debuted last week as the first U.S.-listed ETF to track the U.K.’s benchmark FTSE 100 index. The FTSE 100 allocates nearly 12% of its weight to energy names with banks at almost 10.5% being the only other sector to command a double-digit weight, according to Recon Capital data. Personal and home goods along with industrial goods and services each have weights north of 9% in the 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 Tracker in the U.S.]
“The U.K. is one of the strongest economies in the world and producing great economic numbers even better than the US. Jobless data released on April 17 showed benefit claims at the lowest level in four decades and an acceleration in pay growth,” adds Kelly. “Since 2010, the U.K. has added more jobs than the rest of Europe combined — an impressive achievement — and last year its economy was the fastest growing of any major Western nation.”
If British stocks rally and the pound flails after the election, DBUK and DXPS, which are up an average of 7.7% this year, should get opportunities to shine. The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) is off 1.5% this year, but is up nearly 1.6% over the past month.
A significant chunk of U.K. dividends are paid by the largest members of the benchmark FTSE 100. Although neither DBUK nor DXPS are FTSE 100 tracking ETFs, the funds do offer substantial exposure to the index’s most prominent dividend payers.
On a regional basis, North American dividends rose 15% to $392 billion last year, but U.K. firms once again offered excellent dividend growth. Payouts there surged 31% to $135 billion, according to Henderson Global Investors.
Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF
