“Recent returns aside, the investment rationale behind the expectation of a U.K. large-cap and small-cap divergence still holds and further sterling weakness could help drive the performance of large cap over small cap,” according to BlackRock.
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Investors interested in U.K. market exposure have largely turned to EWU, which tries to reflect the performance of the MSCI United Kingdom Index, a benchmark comprised of large- and mid-sized companies in the U.K. and provides access to 85% of the U.K. stock market. When used along with the small-cap focused EWUS, investors would gain exposure to the whole market.
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.
The SPDR MSCI United Kingdom StrategicFactors ETF (NYSEArca:QGBR) is another smart beta option. QGBR’s underlying components are selected based on a combination of three factors – value, quality, and low volatility.
Lastly, 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.