U.K. ETFs in Spotlight as Andy Burnham Completes First Month as PM

This strong relative performance has put the spotlight firmly on U.K. stocks and the exchange-traded funds (ETFs) that track them, suggesting investors might want to consider repositioning their portfolios around the U.K. market.

But before that, one should evaluate whether this equity momentum is sustainable, and for that one must examine the specific underlying economic drivers and corporate performance, which may continue to propel the U.K. market forward.

What’s Been Fueling U.K.’s Rally?

The main engine behind the U.K.’s steady growth has been an expanding services sector, which grew 0.5% in the second quarter, complemented by solid household consumption and gross fixed capital formation. However, the production sector remained stagnant, held back by declines in power generation.

Nevertheless, other industries, particularly banks, energy and defense, have been the primary engines of the FTSE's gains, which benefited from higher interest rates, rising oil prices and increased government defense spending. 

These fundamentals directly bolstered major U.K. corporates’ performance. For instance, Rolls Royce RYCEY has been witnessing solid demand for its defense programs recently, with its order backlog as of July 2026 standing at £17.5bn, equivalent to more than three years of revenue. The stock’s price has surged 26.6% year to date. 

Core U.K. banking institutions, including HSBC Holdings HSBC, have continued to generate resilient net interest margins and record dividend returns, supported by a stable interest rate environment. HSBC has soared 30% so far this year. 

Energy heavyweights like Shell SHEL and BP Plc BP have been capitalizing on firmer global oil and commodity prices, bolstering headline equity returns. SHEL has returned 26.3% year to date, while BP soared 25.9% in the same period.

What Lies Ahead for the U.K. Stock Market?

The outlook for the U.K. economy remains cautiously optimistic amid ongoing challenges, including elevated public debt and persistent fiscal tightropes. While Britain has weathered recent energy shocks better than many feared, economists warn that the recent pace of growth may be difficult to sustain over the long term.

Against this backdrop, the nation’s stock market faces its own tests. The heavyweight FTSE 100 index remains vulnerable to potential drops in global commodity prices or currency shifts. However, its attractive low valuations relative to global peers—combined with a more business-friendly approach under the Burnham administration—provide a strong foundation of support.

On a bright note, as market expectations point toward easing monetary policy adoption from the Bank of England next year, lower borrowing costs and renewed investor confidence should bolster U.K. corporate balance sheets.

U.K. ETFs in Spotlight

Given the complexities of the U.K. market, as mentioned above, one may consider adding the following ETFs to their watchlists, which offer a prudent way to gain broad, diversified exposure, rather than betting on single equities.

iShares MSCI United Kingdom ETF EWU

This fund, with net assets worth $3.80 billion, offers exposure to 67 companies in the U.K. HSBC holds the first spot in this fund with a 10.74% weight, while SHEL holds the second spot with an 8.01% weight. RYCEY holds the fourth position in this fund, with a 5.32% weight, while BP holds the sixth spot with a 3.53% weight. 

EWU has gained 10.4% year to date and charges 50 basis points (bps) in fees.

Franklin FTSE United Kingdom ETF FLGB

This fund, with net assets worth $992.5 million, offers exposure to 96 U.K. companies. HSBC holds the first spot in this fund with a 10.14% weight, while SHEL holds the second spot with a 7.58% weight. RYCEY holds the fourth position in this fund, with a 5.03% weight, while BP holds the sixth spot with a 3.34% weight. 

FLGB has risen 10.7% year to date and charges 9 bps in fees.

First Trust United Kingdom AlphaDEX ETF FKU

This fund, with net assets worth $39.5 million, offers exposure to 76 U.K. companies. easyJet holds the first spot in this fund with a 2.52% weight, while SHEL holds the third spot with a 2.45% weight. 

FKU has rallied 11% year to date and charges 80 bps in fees.

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This article originally published on Zacks Investment Research (zacks.com).

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