There are rising COVID-19 fears in the northern hemisphere as cases surge and additional lockdowns are being considered. It’s hurting UK shares and I think that two ASX shares could be worth considering.
According to reporting by the BBC, the UK coronavirus alert level is moving to level 4. That means that transmission is ‘high or rising exponentially’. The government’s scientific adviser warned there could be 50,000 new coronavirus cases a day by mid-October without further action.
The number of COVID-19 confirmed cases in the UK on Monday was another 4,368 with the number rapidly rising compared to previous weeks.
It was a painful Monday for UK investors with the FTSE 100 dropping by 3.4%. I think the UK share market is looking good value during these falls and a rising Australian dollar. Here are the ASX share ideas:
Betashares Ftse 100 ETF (ASX: F100)
This exchange-traded fund (ETF) is about the FTSE 100, as the name suggests. The FTSE 100 is a similar concept to the ASX 100 – it’s the biggest 100 businesses on the London Stock Exchange.
There are plenty of recognisable businesses in the FTSE 100. Even if you don’t know a company’s corporate name, you would know some products like GlaxoSmithKline’s Panadol.
Some of the ETF’s biggest exposures are with names like (in position size order): AstraZeneca, GlaxoSmithKline, British American Tobacco, HSBC, Diageo, Rio Tinto, Unilever, BP, Reckitt Benckiser, Royal Dutch Shell, BHP, Relx, National Grid, Prudential, London Stock Exchange Group, Vodafone and Experian. These are quite different to what you get from large ASX shares.
Further down the holdings list are a number of interesting businesses like Glencore, Barclays, Scottish Mortgage Investment Trust, Ocado, Just Eat, Burberry, Kingfisher, Severn Trent and St James Palace.
I like the diversification that the FTSE 100 ETF offers. It’s better than the diversification of ASX 100 shares that’s for sure, which is focused on financial services and resource businesses. There are five different sectors in the FTSE 100 which have an allocation of more than 10% – consumer staples, financials, healthcare, materials and industrials.
It’s not a tech heavy ETF (with lots of high margin growth) like Betashares Nasdaq 100 ETF (ASX: NDQ), but it certainly ticks the diversification box.
The ETF has an annual management fee of 0.45% per annum, which isn’t bad for the type of investment you get.
Brexit continues to weigh on the UK share market, though hopefully the UK economy will be able to grow once COVID-19 impacts end.
Virgin Money UK CDI (ASX: VUK)
This is a UK bank ASX share, which used to be called CYBG, which stood for Clydesdale Yorkshire Banking Group.
Aside from the major UK banks like Barclays, Virgin Money is one of the next biggest banks after a merger between CYBG and Virgin Money.
Today the Virgin Money UK share price is down 8%. Just like ASX banks, the UK banking sector is suffering with the economic impacts from COVID-19.
The Virgin Money share price has been very volatile over the past year. It has sank 11% over the past week and it’s down 65% since the COVID-19 crash.
The ASX share has seen its net interest margin (NIM) fall due to a decline in the UK’s interest rate. Virgin Money recently said that the third quarter NIM was 1.47%, a reduction from 1.63% from the second quarter. It said that this was also the result of holding excess customer deposits.
Virgin Money is expect a FY20 NIM of between 1.55% to 160% with liability repricing actions to drive an improvement in the NIM in the fourth quarter and beyond.
Virgin Money is definitely a high-risk, high-reward idea. It has fallen a long way. It could rebound hard if the UK can fairly quickly bounce back from COVID-19. But there could also be much higher bad debts over the next 12 months for the ASX share – it just depends how bad things become.
The Betashares Ftse 100 ETF seems like an interesting idea to me. Its top holdings are quite defensive, the share prices are falling and the Aussie dollar is stronger. I’d be happy to invest in the ETF today.
These 3 stocks could be the next big movers in 2020
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.
*Returns as of 6/8/2020
Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.