The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) is up 8% year-to-date, making it one of the better-performing exchange traded funds tracking a major developed market currency as sterling currently resides near its best levels since Brexit.
After more than a year since the historic Brexit vote, United Kingdom exchange traded funds brushed off market concerns and enjoyed a strong year of growth. For example, the iShares MSCI United Kingdom ETF (NYSEArca: EWU), the largest U.K. ETF trading in the U.S., is up 15.4% year-to-date.
Like other major currencies, the pound is besting the slumping dollar this year. The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the tracking exchange traded fund for the U.S. Dollar Index, is one of the worst-performing currency exchange traded funds this year. UUP is lower by almost 9% year-to-date.
“The pound climbed to the highest level against the dollar since just after the Brexit vote and U.K. government bonds tumbled as Bank of England policy maker Gertjan Vlieghe stoked speculation of an interest-rate increase within months,” reports Charlotte Ryan for Bloomberg. “Sterling surged past $1.36 after Vlieghe, considered a dovish voter, turned hawkish to tell a conference that the moment was approaching for a rate hike. The premium to hold call options on the pound relative to puts rose to the widest since 2009, as markets moved to price two rate increases next year.”
The First Trust United Kingdom AlphaDEX Fund (NYSEArca: FKU) provides a smart-beta play on U.K. stocks. Components are selected on growth factors including 3-, 6- and 12- month price appreciation, sales to price and one year sales growth, and separately on value factors including book value to price, cash flow to price and return on assets. FKU is up 16.5% year-to-date.
“Money markets are now pricing a more than 75 percent chance of a rate increase in November, with a 25-basis-point rise fully priced for February and a second one by December 2018. Some currency analysts said two hikes might be a step too far given the uncertainty over Brexit and the economic outlook,” according to Bloomberg.
If investors are worried about foreign exchange risks, the currency hedged iShares Currency Hedged MSCI United Kingdom ETF (NYSEArca: HEWU), WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS) and Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK) outperform non-hedged U.K. exposure during periods of sterling weakness.
For more news and strategy on currency-hedged ETFs, visit our Currency-Hedged category.