UK exchange traded funds have edged back into the green despite recent political upheaval yet inflows and performance have struggled to gain traction due to Brexit fears.
So far this year, global ETF investors have allocated just $227 million to UK stocks, all from mid-June. Previously this asset class saw outflows of more than $1 billion between 1 January and April.
The FTSE 100 has reached around 2% since the New Year, with several setbacks in spring which saw volatility spike and a global market sell off. Over the past year, the index of the UK’s 100 largest companies is at a healthier 8.6%.
Sterling and flows have been volatile since the Brexit referendum found on 23 June 2016 that 51.9% of the voters chose to Leave the European Union, versus 48.1% who voted to Remain. Theresa May, who was elected leader shortly after David Cameron stepped down, has faced two years of disgruntled backbenchers and potential leadership bids.
The latest news to spook the market came from the Brexit summit at May’s holiday home, in Chequers, where she shared her plan for a “soft Brexit” and former foreign secretary Boris Johnson and Brexit secretary David Davis resigned. Johnson reportedly said the original Brexit plan was “illusory” as he departed.
Capital markets dislike uncertainty, and the resulting volatility in sterling, UK stocks and bonds have shown this, although generally speaking falls in sterling are good for UK exporters.
Just this week, sterling fell around 1% to $1.331 GBP/USD on the news that May had lost Davis and Johnson, even though she quickly replaced them. Sterling has yet to recover to its pre-referendum level of around $1.479 GBP/USD.
Inflows to UK equity ETFs have also been volatile. They are barely in the green at around $3 million over the past 12 months, although average performance is over 6% in that period, according to TrackInsight data.
As for the near future, Theresa May has reportedly fended off leadership bids. Her soft Brexit plan will unsettle her hard Brexit colleagues but she is consequently more likely to strike a deal with EU officials.
