Traders trim top UK stock ETF holdings before Brexit vote
Investors’ retreat from the equity ETF marks a turnaround in sentiment after the fund saw steady inflows for most of 2018
London — Some investors didn’t want to take chances on UK stocks ahead of MPs’ historic vote on a Brexit deal.
Britain’s biggest equity-focused exchange-traded fund (ETF) iShares Core FTSE 100 UCITS ETF saw an outflow of £470,000 on Monday, a day before UK parliament is set to reject Prime Minister Theresa May’s Brexit plan. This was the largest one-day redemption since February, according to data compiled by Bloomberg.
Investors’ retreat from the equity ETF marks a turnaround in sentiment after the sterling-denominated fund saw steady inflows for most of last year, despite a negative 4% return, even during the global market turmoil at the end of 2018.
“Surveys of fund managers show a distinct lack of interest, even concern, about UK equities at the start of the year,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments. “This may relate to Brexit uncertainty, but investors are also taking a more defensive posture toward European equities.”
The FTSE 100 index has had a positive start to 2019, as some traders and analysts saw the nation’s battered equities as oversold. The index lost 12% last year in the worst decline since the 2008 financial crisis.
“Investor uncertainty in UK equities is understandable given the risk that sterling could appreciate sharply if the chances of a no-Brexit, rather than a no-deal Brexit, begin to rise after [Tuesday’s] vote,” said Michael Metcalfe, head of macro-strategy at State Street Global Markets.
British and EU diplomats are assuming that the UK will leave the bloc later than the planned March 29 exit date if May’s Brexit proposal is voted down later on Tuesday. This would be the worst-case scenario since it would extend the period of uncertainty hurting the economy, according to JPMorgan Asset Management.
Some of the ETF’s top investments include HSBC Holdings, Diageo and Unilever, all of which are dependent on consumer confidence and economic growth.
“The UK economy has clearly lost momentum as a direct result of uncertainty,” UBS Group strategist John Wraith said in a note. “Mounting and acute uncertainty has evidently impacted private sector demand in the UK, with investment and consumption slowing sharply as confidence among businesses and consumers has fallen.”