European ETF provider Source has introduced a pound sterling-denominated share class for the Source MSCI Europe ex-UK UCITS ETF (LON: MXUK).

Chris Mellor, equity product specialist at Source.

MXUK provides diversified exposure to large and medium sized companies across 14 developed market economies in Europe, excluding the UK. The underlying MSCI Europe ex-UK Index is primarily exposed to equities listed in France, Germany or Switzerland (collectively accounting for approximately 60% of the index’s coverage), followed by The Netherlands (9.4%) and Spain (7.6%).

There are 335 constituents within the index and the largest sector exposures are to financials (22.6%), consumer goods (19.9%), industrials (15.8%) and health care (14.6%).

According to Source’s multi-asset research team, European equities remain a top pick for investors with the market still looking undervalued compared to its long-term cyclically adjusted price-to-earnings ratio. Source believes the fund may suit investors who wish to invest broadly in European equities but are concerned by the uncertainty surrounding the UK’s economic outlook while the country negotiates its exit from the European Union.

Chris Mellor, equity product specialist at Source, explained: “Many of our investors use ETFs because they offer the ability to target specific exposures. For instance, some investors may want to separate their exposures to Europe and the UK, especially with Brexit causing uncertainty around the outlook for the UK. This ETF effectively puts investors in control of the allocation.”

The index has returned 8.5% year-to-date through the end of July 2017, compared to 6.3% for the MSCI Europe Index.

MXUK has a total expense ratio (TER) of 0.20%. The fund is a part of Source’s range of ‘core’ ETFs – low-cost index trackers designed to act as the foundational building blocks of investors’ portfolios. It was initially launched on Deutsche Börse in June 2017 where it trades in euros under the same ticker code.

ETFs listed in Europe tracking the MSCI Europe ex-UK Index can also be found through providers iShares and BMO. The iShares MSCI Europe ex-UK UCITS ETF (LON: IEUX) holds significant assets of £2.4bn. It trades in pound sterling but is twice the cost of the Source product with a TER of 0.40%.