The London Stock Exchange (LSE) is the third-largest stock exchange in the world. With over 3,000 companies listed, it has a market capitalization of more than $6 trillion. So how can you invest in stocks in the U.K. if you live in the U.S.?
One of the easiest ways for U.S. citizens to invest in the British companies is through American Depository Receipts, or ADRs. ADRs are U.S.-listed securities that represent a share of foreign company stock. They enable investors to buy and trade stock in foreign companies that aren’t available on the U.S. stock exchanges. Some popular U.K. ADRs are BP plc (BP), GlaxoSmithKline plc (GSK), and Barclays plc (BCS).
Americans can also invest in U.K. stocks through ETFs.
Another popular way to invest in U.K. stock is to purchase exchange-traded funds or ETFs. Some funds offer diversified exposure to U.K. stocks. There are currently 13 different ETFs that track the four indices available in the U.K.
The most dominant U.K. index is the Financial Times Stock Exchange (FTSE) 100. The FTSE 100 tracks the 100 largest stocks in the U.K. There are eight ETFs invested in the FTSE 100, and Americans have access to three. They are:
iShares MSCI United Kindom (EWU)
One of the most popular U.K. ETFs is the iShares MSCI United Kingdom ETF (EWU) which tracks the MSCI UK Index of large and mid-cap equity market performers. This fund has about $3.8 billion in assets under management. Top holdings include investment bank HSBC Holdings PLC, consumer goods company Unilever PLC, and pharmaceutical company AstraZeneca PLC. This fund has an expense ratio of .51 percent.
iShares MSCI United Kingdom Small-Cap ETF (EWUS)
Like the EWU, the iShares MSCI United Kingdom Small-Cap ETF (EWUS) tracks about 270 British small-cap stocks. This fund provides exposure to small publicly traded U.K. companies, with its top 10 holdings accounting for under 15 percent of its total assets. It managed $124.3 million in assets in 269 holdings. Top holdings include asset management company Intermediate Capital Group PLC, online real estate portal RightMove PLC, and packaging company Smith (DS) PLC.
First Trust United Kingdom AlphaDEX Fund (FKU)
The objective of the First Trust United Kingdom AlphaDEX Fund (FKU) is to track the NASDAQ AlphaDEX United Kingdom Index. This fund includes 75 top stocks that are selected using the AlphaDEX methodology to ranks stocks on the index based on growth factors, including 3-, 6- and 12- month price appreciations. Top holdings include real estate investment trust (REIT) Segro PLC, multi-platform media company Future PLC, and grocery store chain Wm Morrison Supermarkets PLC.
You could also Invest directly in U.K. companies through international brokers.
For broader access to international stocks and more flexibility in the companies you invest in, you could contact an international brokerage firm that has access to stocks listed on the London Stock Exchange. U.S. firms such as Interactive Brokers offer that service. You can also contact a U.K. stock brokerage, but be sure to ask about any tax or legal implications that may arise.