While the British pound continues hovering near its lowest levels in over three decades, U.K. stocks have recently been decent performers.
That might be why some traders are turning bullish on the iShares MSCI United Kingdom ETF (NYSEArca: EWU), the largest US-listed U.K. ETF. In fact, the U.K.’s benchmark FTSE 100 recently hit an all-time high.
Last month, the Bank of England pared 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.
The BOE also revived its government bond-buying program, which has been on pause since 2012, along with purchasing corporate bonds as well.
SEE MORE: Currency-Hedged U.K. ETFs for Improving Earnings, Depreciating Pound
EWU is not a currency hedged product. Some market observers expect the Bank of England to enact more accommodative measures to help bolster the economy. In the post-Brexit environment, Martin Weale, one of the bank of England’s long-time hawks, is even beginning to turn dovish on their policy outlook.
Data suggest some investors are bullish on EWU.
“On Tuesday, the iShares MSCI United Kingdom ETF, the largest U.S.-listed U.K. exchange-traded fund (ETF), received $96 million in inflows, the largest daily inflow in 16 months,” according to Bloomberg.
There are options for investors looking to play U.K. stocks benefiting from the weaker pound, including the Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK), iShares Currency Hedged MSCI United Kingdom ETF (NYSEArca: HEWU) and the WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS).
DXPS has been a stellar performer this year.
The rally in DXPS “underscores greater demand for currency-hedged U.K. equity-focused assets in the aftermath of the Brexit referendum earlier this year. The gains also brings to mind similar standout performance from the ETF’s currency-hedged Japanese and European cousins at the beginning of 2013 and 2015, respectively, which were accompanied by sizeable inflows at those times,” reports Bloomberg.
RELATED: Don’t Fight the Charts on the British Pound ETF
In the case of United Kingdom exposure, investors may have found a more “neutral” position with currency-hedged ETFs as the smart-beta strategies have more-or-less reflected the same performance of the underlying U.K. assets, and even the FTSE 100, sans currency risks.
However, potential investors should keep in mind that these currency-hedged ETFs may underperform non-hedged strategies when a foreign currency appreciates against the U.S. dollar, so the investment strategy is not without its risks.
iShares MSCI United Kingdom ETF
