While the growth of ETFs both in Canada and internationally has continued to gather pace in 2016, the past week has saw many European-funds take a real battering.
In particularly, pound sterling ETFs have experienced a nosedive since the results of the referendum last Thursday. The markets’ movement at the beginning of last week as the pound rallied suggested a Remain vote was in the cards. That the Leave vote ultimately prevailed was a huge shock to most observers, and led to huge losses among many investors. The benefit of ETFs of course is the diversification they offer, so it’s unlikely anyone lost their shirt in this area. That being said, sterling ETFs are unlikely to offer much in the way of returns for the time being, and at least until the political and economic situation in the UK and Europe stabilizes somewhat.
That could be some way off judging by current projections, with experts predicting the British economy could now sink into a recession. As per recent UK government data, Brexit could mean a contraction of between 3.8 and 7.5 per cent in the UK economy by 2030.
In the near term, the picture is no less rosy. The pound reached a 30-year low of US$1.3224 the day after the vote, which meant the CurrencyShares British Pound Sterling ETF FXB lost about 8.4% on the same day, as per CNBC.com.
The FXB tracks the movement of the pound sterling relative to the US dollar, and is likely to have a tough time ahead as currency trading has flocked to the greenback since Brexit.
One cause for optimism is the fact the pound’s decent will likely hit a bottom soon and this could create value for those with a long-term view.
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