The Case for U.K. Equities through a Developed Markets ETF

It’s been a long time coming, but there’s finally some momentum for ex-U.S. developed markets, including the United Kingdom.

Many of those markets offer upside potential and attractive valuations relative to U.S. equities, indicating the FlexShares Developed Markets ex-US Quality Low Volatility Index Fund (NYSE: QLVD) is an interesting consideration over the medium-term.

QLVD is also a credible idea for investors seeking non-dedicated exposure to British stocks.

“After a dismal 2020, the UK equity market appears to be getting more of a bounce in its step these days. And the future may be looking brighter, according to new research from global index provider Morningstar Indexes,” according to Morningstar research. “A confluence of local and global tailwinds such as the UK’s emergence from coronavirus lockdowns and reopening of the local economy and a strong corporate earnings season have contributed to a 9.4% (GBP) rise for the Morningstar UK Index in 2021 through the end of April, as compared to a 11.5% decline in 2020 and a 5.7% annual return over the last decade.”

Considering QLVD for U.K. Exposure

Single-country exchange traded funds are fine ideas for professionals and tactical market participants, but for many investors, broad-based funds such as QLVD are suitable for international exposure. As a play on rebounding U.K. equities, QLVD has some credentials, as it allocates almost 10% of its geographic weight to that region, making that it’s largest country exposure behind Japan and Switzerland.

At a time when value investing is back in style, even modest allocations to the U.K. are practical because it’s a deeply discounted market.

“After years of global equity market gains, investors need to beware of sky-high valuations when deciding where to place their bets going forward. UK equities represent one of the world’s best relative bargains,” says Morningstar strategist Dan Lefkovitz.

Low valuations and the reopening trade are among the factors contributing to renewed interest in U.K. stocks among global investors.

“Investors have been flocking towards UK equities this year with over £2.3 billion raised in European ETFs as of 4th May 2021, second only to US equities when looking at single country equity flows, and we expect this trend to continue,” said Samet Patel, head of U.K. wealth and distribution at Lyxor ETFs. “Part of this shift can be explained by attractive UK equity valuations and the “reopening rebound” as lockdown restrictions continue to lift across the country.”

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.