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How to Play the Pound and UK ETFs Now

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The British pound is now the worst performing major currency in the world, thanks to growing Brexit concerns. The currency has continued to slide since the Brexit vote on June 23, while recently the fall accelerated after the British PM Theresa May said that she plans to pursue a “hard Brexit”.  It is now down almost 20% against the dollar since the vote.

The decline in currency has greatly benefited UK stocks with the FTSE 100 rallying to near all-time high levels. Another reason for the rally in stocks is that Brexit did not trigger any systemic event.

While the decline in the currency makes British exports more competitive, it also increases the possibility of inflation since imports become more expensive. Higher inflation could prevent the Bank of England from easing further to support the economy.

While it is difficult to predict how Brexit is going to play out in the longer-term, it appears that the currency will remain under pressure at least in the near-term, more so with the rising probability of a rate hike in the US. 

As far as UK stocks are concerned, they look somewhat expensive now.

Biggest Winners: Currency Hedged UK ETFs

ETF Ticker Expense Ratio AUM YTD Return
iShares Currency Hedged UK ETF (HEWU - Free Report) 0.45% $116.97 mil 13.80%
WisdomTree UK Hedged ETF 0.48% $28.22 mil 17.26%
Deutsche X-trackers UK Hedged Equity ETF (DBUK - Free Report) 0.45% $6.22 mil 12.83%
Biggest Losers: British Pound ETFs

ETF Ticker Expense Ratio AUM YTD Return
CurrencyShares British Pound ETF (FXB - Free Report) 0.40% $256.78 mil -17.91%
iPath GBP/USD Exchange Rate ETN GBB 0.40% $3.83 mil -17.84%

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