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United Kingdom ETFs
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About United Kingdom ETFs |
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UK ETFs: Overview and forecast
The UK is a developing market for ETFs, despite the FTSE's fall in the 2008 crash and the comatose UK economy. The FTSE index UK ETFs, as a matter of fact, are producing some good returns in the second quarter of 2009. The big ETF fund manager ishares is almost the only ETF manager in the market at the moment, but that can be expected to change as the recovery picks up speed.
For people who've been following the fortunes of the battered UK economy, the trading patterns across the range of UK ETFs are an interesting study. The UK property market ETF, iShares FTSE EPRA/NAREIT UK Property Fund (LSE:IUKP), is a case in point. The UK property market hit a solid brick wall in 2008, even before the crash. IUKP's price ranges through that period and into 2009, and its volumes of trade, are like a running commentary on that market.
The FTSE index ETFs, similarly, received a severe battering through the crash. An interesting point for traders, however, is that these ETFs show the ability to produce big margins off lows, and the Rate of Change (ROC) shows a tendency since 2008 to correlate large ROC moves with small volumes of trade, below average volumes.
There's obviously quite a bit of life in the UK ETFs, despite the sluggish markets. Volumes of trade are respectable, and some ETFs have spiked noticeably during the crash period, both in prices and volumes. The UK and Canada are the two most active ETF markets outside the US, and the difference between the UK ETFs and the other markets is noticeable. Unlike the US, trading volumes haven't been much affected by the price drops during the crash. Volumes are reasonably consistent. Sudden bursts of higher volumes are the exception, rather than the rule.
The short term (6 months)
The UK ETFs have responded well in the second quarter of 2009, and produced some good margins in that period. The intensity level of trade seems to be picking up, too, with volumes increasing, and the ROCs are looking a lot choppier, so business is generally picking up.
The short term outlook has to take into account the fact that these ETFs are near the top of their recent range, and that the indices and markets aren't showing a lot of potential for a surge. There is an upside, because of the general return of energy to the markets, but in the short term it looks minimal.
The medium term (2 years)
The UK ETFs are also likely to move relatively slowly in the start of the medium term, because of the depth of the UK recession. They're currently trading well, but not to the extent of predicting a major upward move in the first year of the medium term. There aren't any indications of much more than good trading margins, and a general return to positive upper baseline bandwidths.
The later part of the medium term outlook is however looking a lot stronger. The UK market is a high volume capital investment market, and the tendency of these markets is to grow exponentially. Allowing for the state of the economy, in the medium term the UK ETFs will return to their higher price ranges over time. They're likely to be tracking the indices, reflecting the major stock index performances, which would indicate a stronger performance at the second year of the period.
Long term (5 years)
The UK ETFs are capable of good moves, and there is plenty of upside on their historical highs, but this unusually deep recession has affected all capital investment markets, and the spread of capital is relatively thin, as a result. That means that the growth element will start lower during the medium term, and that will carry on to the start of the longer term period.
An important consideration in the long term is that the UK capital market is plugged directly into the global capital markets. If the global recovery starts sooner, the UK economy and indices will pick up a lot faster. Any revival in the US or European markets will be picked up immediately in the UK, and there is the potential for an upward surge in the indices, so the UK ETFs are well placed to benefit.
Qualifiers to projections
There's a major caveat on the forecast that must be mentioned. The recession has shown some large problems in the UK financial sector, and the housing market, which is a primary economic indicator, isn't doing at all well, both of which are factors which directly affect UK capital markets. A prerequisite for a return to economic health for the UK is a range of clear indications that the economy has been put back in working order.
UK ETFs are all based on major indices, and they're all locked in to these big issues. Their performance has been relatively good, considering the mauling of the British financial sector, but they can't perform at their best without a significant upturn in present economic conditions. That is likely to happen in about 3 years, as the current issues are finalized.
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Last Updated on: 2010-01-14 02:03:40 |
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