Traders Trim Top U.K. Stock ETF Holdings Before Brexit Vote

(Bloomberg) -- Some investors didn’t want to take chances on U.K. stocks ahead of lawmakers’ historic vote on a Brexit deal.

Britain’s biggest equity-focused exchange-traded fund iShares Core FTSE 100 UCITS ETF saw an outflow of 470,000 pounds ($610,000) on Monday, a day before Parliament was set to reject Theresa May’s Brexit plan. This was the largest one-day redemption since February, according to data compiled by Bloomberg.

Traders Trim Top U.K. Stock ETF Holdings Before Brexit Vote

Investors’ retreat from the equity ETF marks a turnaround in sentiment after the sterling-denominated fund saw steady inflows for most of last year, despite a negative 4 percent return, even during the global market turmoil at the end of 2018.

“Surveys of fund managers show a distinct lack of interest, even concern, about U.K. equities at the start of the year,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments. “This may relate to Brexit uncertainty, but investors are also taking a more defensive posture toward European equities.”

The FTSE 100 Index has had a positive start to 2019, as some traders and analysts saw the nation’s battered equities as oversold. The index lost 12 percent last year in the worst decline since the 2008 financial crisis.

“Investor uncertainty in U.K. equities is understandable given the risk that sterling could appreciate sharply if the chances of a no-Brexit, rather than a no-deal, begin to rise after today’s vote,” said Michael Metcalfe, head of macro strategy at State Street Global Markets.

British and European Union diplomats are assuming that the U.K. will leave the bloc later than the planned March 29 exit date if May’s Brexit proposal is voted down later in the day. This would be the worst-case scenario since it would extend the period of uncertainty that is hurting the economy, according to JPMorgan Asset Management.

Some of the ETF’s top investments include HSBC Holdings Plc, Diageo Plc and Unilever Plc, all of which are dependent on consumer confidence and economic growth.

“The U.K. economy has clearly lost momentum as a direct result of uncertainty,” UBS Group AG strategist John Wraith said in a note. “Mounting and acute uncertainty has evidently impacted private sector demand in the U.K., with investment and consumption slowing sharply as confidence among businesses and consumers has fallen.”

(An earlier version of the story corrected the size of the outflow in the second paragraph.)

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