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U.K. Retail Sales Slows: ETFs in Focus

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The monthly retail survey conducted by the Confederation of British Industry showed a dramatic decline in retail sales in the United Kingdom.


Retail sales volume came in at -10% in August compared with 22% in the previous month and below analyst expectations of 15%. This reading is the lowest since July 2016, after the Brexit referendum.


The Office for National Statistics (ONS) in an August 15, 2017 report said that the U.K.’s Consumer Price Index (CPI) growth remained steady at 2.6% in July 2017 compared with a near four-year high of 2.9% in May.  It was also below market expectations of 2.7%. However, it has increased tremendously compared with the inflation reading of 0.6% a year earlier, owing to the slump in the pound.


Per Bank of England, inflation is expected to adopt a rising trajectory and hit a five-year high of 3% in October. It increased its full-year 2017 inflation forecast to 2.7% from the previous estimate of 2.6%.


Although average weekly earnings grew 2.1% in the three months through June, which is above analysts’ expectations of 1.8%, but declined 0.5% taking inflation into account. Moreover, the U.K. economy grew 0.3% in the second quarter, half the overall euro zone’s growth (read: U.K. GDP Edges up in Q2: ETFs in Focus). 


Although retailers expect sales growth to rebound next month, persistent wage pressures are expected to weigh on household spending.


This report reflects that the economy is currently not stable enough to sustain a rate hike. The high uncertainty around the potential impact of Brexit negotiations demand the stimulus measures to continue. Hence, the recent data might bring some respite to the Bank of England, as analysts are predicting the odds of a rate hike in the near term to be too low.


Let us now discuss a few ETFs focused on providing exposure to the U.K. (see all European Equity ETFs here).


iShares Currency Hedged MSCI United Kingdom ETF (HEWU - Free Report)


For those looking to gain exposure to the British markets in particular, this fund is one of the most popular pure play options available. It seeks to maintain equity exposure to its un-hedged version EWU, while hedging away currency fluctuations between the dollar and the British pound (read: U.K. Consumer Confidence Steadies: ETFs in Focus).


The fund has AUM of $19.01 million and charges 49 basis points in fees per year. Financials, Consumer Staples and Energy are the top three sectors of this fund with 21.42%, 18.02% and 13.39% allocation, respectively (as of August 23, 2017). The top three holdings for EWU are HSBC Holdings PLC, British American Tobacco PLC and Royal Dutch Shell PLC, with 7.64%, 5.65% and 4.92% allocation, respectively (as of August 23, 2017).  It has returned 5.08% year to date but has lost 4.54% in the last one year (as of August 24, 2017). HEWU currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


WisdomTree United Kingdom Hedged Equity Fund (DXPS - Free Report)


This fund seeks to provide exposure to the U.K. dividend paying companies with an export tilt, while also hedging the currency risk.


The fund has AUM of $14.63 million and charges 48 basis points in fees per year. Consumer Staples, Energy and Financials are the top three sectors of this fund with 18.34%, 15.34% and 14.92% allocation, respectively (as of August 24, 2017). The top three holdings for the fund are Royal Dutch Shell PLC Class B, Vodafone Group PLC and Royal Dutch Shell PLC Class A with 5.32%, 5.16% and 5.05% allocation, respectively (as of August 24, 2017). It has returned 4.59% year to date but has lost 6.87% in the last one year (as of August 24, 2017). DXPS currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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