Industry Updates

Investors pile into UK ETFs as Brexit fog clears

Two UK equity ETFs saw the highest inflows across all European-listed ETFs during the last week of 2020

Tom Eckett

City of London UK

UK strategies saw the highest inflows across all European-listed ETFs in the last week of 2020 following news of a historic deal between the UK and the European Union.

According to data from Ultumus, the $11.5bn iShares Core FTSE 100 UCITS ETF (ISF) saw $237m inflows in the week to 1 January, the most across all ETFs in Europe.

ISF was followed by the $3.3bn Vanguard FTSE 250 UCITS ETF (VMID) which witnessed $190m inflows over the same period.

The inflows come just days after the UK and the EU agreed a trade deal on 24 December, a week before the end of the Brexit transition period.

With the risk of a no-deal Brexit averted, the outlook for UK equities is positive following news the approved Oxford coronavirus vaccine could be rolled out quicker than anticipated.

Last year, the FTSE 100 suffered its worst year since the Global Financial Crisis in 2008 falling 14.3% with many companies struggling to recover from the coronavirus turmoil.

ETF industry prepares for no-deal Brexit

However, according to Vitali Kalesnik, director of research for Europe, at Research Affiliates, this means UK equities are trading at extremely “attractive” valuations.

Positive news around Brexit and the coronavirus vaccine could lead to a mean reversion in UK equities, Kalesnik predicted.

“For many years, the trend has been for UK pension schemes to sell their UK equity mandates and invest in more diversified global portfolios.

“Given the attractive valuations for UK equities, the upcoming resolution of uncertainty around Brexit, and advances in COVID-19 vaccination, a review of the timing of such a move may be warranted.”

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