United Kingdom country-specific exchange traded funds rallied and the pound sterling weakened after the Bank of England implemented a bigger-than-expected package of stimulus measures Thursday.
On Thursday, the iShares Currency Hedged MSCI United Kingdom ETF (NYSEArca: HEWU) gained 1.7%, WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS) rose 1.5% and Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK) was down 0.6%.
To be fair, while the U.S.-listed ETFs are trading during hours when the underlying U.K. markets are closed, DBUK was showing a steeper -1.60% discount to its net asset value, which may explain the dip in the Deutsche fund at last check, compared to the premium to NAV of 0.02% for HEWU and 0.59% for DXPS.
Meanwhile, the iShares MSCI United Kingdom ETF (NYSEArca: EWU), a non-currency-hedged U.K. ETF, was up 0.1%. The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) fell 1.6% as the pound depreciated 1.6% against the U.S. dollar to $1.3107.
U.K. currency-hedged ETFs have been outperforming as they have been able to capture the rebound in British stocks, which mostly include larger exports that benefited from a weakening pound, while diminishing the negative effects of a weakening GBP.
The Bank of England announced a stimulus package on Thursday. The central bank cut its benchmark rates to a record low 0.25% from 0.5% and anticipates it will further bring it down toward zero ahead, the Wall Street Journal reports.[related_stories]
The BOE also revived its government bond-buying program, which has been on pause since 2012, along with purchasing corporate bonds as well.
Furthermore, the central bank added a new term-funding program for banks, providing lenders ultra-cheap, four-year loans to help finance lending for households and businesses as an additional step to stimulate the economy.
The aggressive moves were seen as a way to stimulate Britain’s economy and to mitigate the fallout of the country’s vote to leave the European Union, or so-called Brexit.
Looking ahead, investors and market watchers are still waiting on the government to implement fiscal stimulus measures as well.
“What will really count is whether the Chancellor [of the Exchequer]provides a fiscal boost in the autumn. Monetary policy can’t do much more on its own,” Lucy O’Carroll, chief economist at Aberdeen Asset Management, told the Wall Street Journal, arguing that the BOE had to announce a barrage of measures Thursday more “for the sake of its own reputation than the economic benefits.”
For more information on the U.K., visit our United Kingdom category.
iShares Currency Hedged MSCI United Kingdom ETF