In light of a potential headache from a protracted Brexit negotiation, exchange traded fund investors seeking Europe exposure have turned to options that specifically exclude United Kingdom exposure.
The “Europe ex-UK” investment class is quickly gaining steam as offshore investors actively avoid lumping British exposure into any Europe-region investment, with Brexit and London’s role as the regional financial hub in question, Reuters reports.
According to Lipper year-to-date flows data, ETFs that track European stocks excluding the U.K. are the ones attracting the greatest inflows. For instance, among the most popular picks, the the iShares MSCI EMU ETF (NYSEArca: EZU), an ETF that tracks countries in the European Monetary Union or Eurozone, which excludes United Kingdom and Switzerland country exposure, has seen $3.9 billion in net inflows so far this year.
On the other hand, regional ETFs that include U.K. exposure have experienced outflows, indicating investors are only looking for Eurozone exposure and avoiding British stocks.
“The two regions have been separate but that has been accentuated by Brexit,” Stephen Mitchell, a portfolio manager who runs a global equities fund at Jupiter Asset Management, told Reuters. “American investors left the UK in the two weeks after Brexit – by July 2016 they were gone. The uncertainty of Brexit has kept them out. That’s probably going to continue to be the case for the time being.”