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Economic Readings Upbeat: Is It Time to Buy UK ETFs?
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The British economy grew 1.3% sequentially in the final quarter of 2020, higher than the preliminary estimate of 1%. Third-quarter GDP figures were also revised up to record a 16.9% expansion.
However, things are turning around for the better. Retail sales massively outdid expectations in March to jump 5.4% sequentially, while a survey showed that British consumer sentiment this month shot up to its highest point since the pandemic, per a CNBC article.
The U.K.‘s flash composite purchasing managers’ index reading for April jumped to 60 from 56.4 in March, indicating its highest level since November 2013. Goldman Sachs has now thus boosted its growth forecast for the U.K. economy to a staggering 7.8% for 2021, as quoted on a CNBC article.
In February, the Wall Street analysts boosted their projections for 2021 U.S. growth to 6.8%, while the International Monetary Fund projected U.S. growth at 6.4%, the CNBC article noted. If we consider both figures, the Goldman Sachs-projected-UK-growth rate will surpass that of the United States.
However, a Reuters poll by analysts published on Apr 13 revealed an average growth forecast of 5.0% in the U.K. this year. The International Monetary Fund has projected a 5.3% expansion for the U.K. economy. But then, a Reuters article also indicated that the U.K. economy recoiled more sharply since those forecasts were made. The latest economic readings are more upbeat. More than half of British population has received the first coronavirus vaccine dose, the article pointed out.
Easy comparison is also facilitating the upbeat economic data. The economic contraction in 2020 was a sharp 9.8% for Britain. By comparison, the U.S. economy retreated by an estimated 3.5%. So, chances of a greater rebound are likely for the U.K.
Moreover, the U.K. equity valuation is cheaper than the U.S. ones. SPDR S&P 500 ETF (SPY - Free Report) has a P/E 25.16X. In comparison, the First Trust United Kingdom AlphaDEX Fund (FKU - Free Report) ETF has the highest P/E of 20.55X while other ETFs possess P/Es in the range of 18X to 19X.
Against this backdrop, below we highlight a few U.K. ETFs that could be tapped at the current level.
ETFs in Focus
First Trust United Kingdom AlphaDEX Fund (FKU - Free Report) – Up 16.4% YTD
iShares MSCI United Kingdom Small-Cap ETF (EWUS - Free Report) – Up 13.6% YTD
iShares MSCI United Kingdom ETF (EWU - Free Report) – Up 10.8% YTD
iShares Currency Hedged MSCI United Kingdom ETF – Up 8.9% YTD
SPDR Solactive United Kingdom ETF – Up 7.7% YTD
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Economic Readings Upbeat: Is It Time to Buy UK ETFs?
The British economy grew 1.3% sequentially in the final quarter of 2020, higher than the preliminary estimate of 1%. Third-quarter GDP figures were also revised up to record a 16.9% expansion.
Despite two successive quarters of growth, the level of GDP is still 7.3% below its pre-pandemic level. Business investment and household consumption are still 7.4% and 9.2% lower than their pre-pandemic levels, respectively.
However, things are turning around for the better. Retail sales massively outdid expectations in March to jump 5.4% sequentially, while a survey showed that British consumer sentiment this month shot up to its highest point since the pandemic, per a CNBC article.
The U.K.‘s flash composite purchasing managers’ index reading for April jumped to 60 from 56.4 in March, indicating its highest level since November 2013. Goldman Sachs has now thus boosted its growth forecast for the U.K. economy to a staggering 7.8% for 2021, as quoted on a CNBC article.
In February, the Wall Street analysts boosted their projections for 2021 U.S. growth to 6.8%, while the International Monetary Fund projected U.S. growth at 6.4%, the CNBC article noted. If we consider both figures, the Goldman Sachs-projected-UK-growth rate will surpass that of the United States.
However, a Reuters poll by analysts published on Apr 13 revealed an average growth forecast of 5.0% in the U.K. this year. The International Monetary Fund has projected a 5.3% expansion for the U.K. economy. But then, a Reuters article also indicated that the U.K. economy recoiled more sharply since those forecasts were made. The latest economic readings are more upbeat. More than half of British population has received the first coronavirus vaccine dose, the article pointed out.
Easy comparison is also facilitating the upbeat economic data. The economic contraction in 2020 was a sharp 9.8% for Britain. By comparison, the U.S. economy retreated by an estimated 3.5%. So, chances of a greater rebound are likely for the U.K.
Moreover, the U.K. equity valuation is cheaper than the U.S. ones. SPDR S&P 500 ETF (SPY - Free Report) has a P/E 25.16X. In comparison, the First Trust United Kingdom AlphaDEX Fund (FKU - Free Report) ETF has the highest P/E of 20.55X while other ETFs possess P/Es in the range of 18X to 19X.
Against this backdrop, below we highlight a few U.K. ETFs that could be tapped at the current level.
ETFs in Focus
First Trust United Kingdom AlphaDEX Fund (FKU - Free Report) – Up 16.4% YTD
iShares MSCI United Kingdom Small-Cap ETF (EWUS - Free Report) – Up 13.6% YTD
iShares MSCI United Kingdom ETF (EWU - Free Report) – Up 10.8% YTD
iShares Currency Hedged MSCI United Kingdom ETF – Up 8.9% YTD
SPDR Solactive United Kingdom ETF – Up 7.7% YTD
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>