NEW YORK (ETF Expert) -- Last summer, I began accumulating shares of iShares MSCI United Kingdom (EWU). My primary reasons included: (1) an attractive valuation for the developed market asset, (2) the resilience of the British consumer and (3) the region's freedom to make decisions independent of the European monetary zone. (See 3 Reasons To Collect Your Royalites From The United Kingdom ETF.)
With a bevy of well-respected corporations including Vodaphone (VOD), Diageo (DEO) and GlaxoSmithKline (GSK), iShares MSCI United Kingdom continues to impress as a venerable foreign asset. Granted, it may appear to be more volatile than domestic assets due in large part to currency fluctuations. Yet the risk-reward of owning this exchange vehicle has earned it a spot in most of my client portfolios.
Here, then, are five additional reasons why embracing the U.K. should prove profitable in 2014:
1. Manageable Public Debt. Most of the stock market's recent rebound over the last five days may be attributable to a belief that Federal Reserve head Janet Yellen would do "whatever it takes" to stimulate the U.S. economy as necessary; Yellen even emphasized that tapering of bond purchases are not on a pre-set course. Yet, many writers failed to take note that, for the first time in nearly three years, the U.S. House of Representatives voted to raise the debt ceiling without any conditions. In so doing, the country's 106% public debt-to-GDP is a can that may be kicked further down the road for only so long.In contrast, the International Monetary Fund rates the United Kingdom as having one of the more favorable public debt-to-GDP ratios of any developed country or region. While 88% may not exactly be an unencumbered statistic, it is far more manageable than the bulk of eurozone countries in the same neck of the woods. 2. The Return of "Goldilocks." Collectively, developing countries still boast better economic growth rates and better debt ratios than most of the developed world, including the U.K. Yet, the contribution of global growth by emergers is still declining. Meanwhile, the eurozone is just barely working its way out of a recession and the United States has been averaging closer to a "new normal" of 2%-2.5% GDP. In contrast, the United Kingdom may have the best GDP/modest inflation of any developed region or country. The Bank of England recently forecasted annualized 2014 GDP of 3.4%, a marvelous upward revision from three months earlier. With inflation expected to average under 2% for the next three years, there are plenty of reasons to be optimistic about U.K. prospects.
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