If you’re a UK investor and you haven’t opened your ISA for this tax year, here are some last minute ETF ideas for your tax-free account.
I’m not suggesting you should rush and build out a portfolio purely comprising these ETFs. The idea is that you could use some of these suggestions to help expand your own portfolio. If you want a simple off-the-peg portfolio, take a look at All you need are Four ETFs.
Let’s start with the UK:
UK ETFs
iShares Core FTSE 100 UCITS ETF (ISF)
This ETF gives you cheap exposure to the Footsie with an ongoing charge of just 0.07% a year. It’s tracked the Footsie closely in recent years and it’s a nice big ETF with over £6 billion under management. So there’s no danger of it being shut down.
It’s not the absolute cheapest UK ETF - the Lyxor Core Morningstar UK ETF charges just 0.04% a year - but 0.03% a year doesn’t really make much difference. (30p a year on an investment worth £1000.) What’s more, the Lyxor ETF is much smaller and also much newer than the iShares Core FTSE 100 one. That means it doesn’t have much of a track record to evaluate when you’re looking at things like tracking difference.
SPDR FTSE UK All-Share UCITS ETF (FTAL)
This ETF gives you a bit more diversification with exposure to around 640 stocks in the FTSE All-Share. However, the extra diversification isn’t that big - the FTSE 100 comprises well over 80% of the All-Share by value. The ongoing charge is 0.2% a year and the fund size is just £500 million.
Xtrackers FTSE 250 UCITS ETF (XMCX)
The beauty of the mid-cap 250 is that you get more companies that are very much focused on the UK. (Although there are still some global companies all the same.) This ETF from Xtrackers has a nice low charge at 0.15% and the tracking error is reasonably low.
US ETFs
Valuations for US stocks are certainly higher than for the UK, Europe or Japan, but I still think most investors should have some exposure to the US. The American economy is still stronger than many of its peers and the country remains a hotbed of innovation and growth.
iShares Core S&P 500 UCITS ETF (CSPX)
If you want broad exposure to the US market, this is a great way to get it. The S&P 500 contains all the well-known American names and this ETF only charges 0.07% a year. It also has low tracking error and is nice and large with £25 billion under management.
Invesco EQQQ NASDAQ-100 UCITS ETF (EQQ)
Many of the best US tech companies are in the Nasdaq 100 index, so this could be an attractive option if you’re a growth-focused investor. To be clear, the Nasdaq isn’t comprised solely of technology stocks, but you’ll get good exposure to lots of big names: Alphabet, Amazon, Apple, Facebook, Microsoft and more. The ongoing charge is reasonable at 0.3% a year.
If you’re keen to invest in the technology revolution, you’ll find more ETF ideas in Technology isn’t going away and ETFs and the AI boom.
GLOBAL ETFs
A lot of the best known global ETFs track indices that don’t include emerging markets: In particular the MSCI World index and FTSE Developed World indices. There’s a lot to be said for these indices and some of the tracking ETFs are charging as little as 0.12%. However, I’ve gone for the extra breadth of an all-world ETF – then you can use it as a ‘one-stop shop’ if you wish.
Vanguard FTSE All World UCITS ETF (VWRD)
The FTSE All-World index gives you exposure to over 90% of the global stock market including emerging markets. At 0.25%, it’s more expensive than some of pure developed world ETFs, but it’s probably worth paying a little bit more to get that diversity. Tracking difference in recent years has been good although tracking error has been less impressive.
Here’s a breakdown of exposure to the biggest regions and countries:
Country/Region% of ETFUnited States53.4%Eurozone9.5%Japan8.0%Asia - Emerging5.9%UK5.6%Asia – Developed4.5%
You might be surprised that a global fund is so heavily slanted towards the US, but remember that many big US companies are global players so your economic exposure is probably broader than the above table suggests. And, of course, this ETF gives you a bit of emerging markets diversification.
iShares MSCI World Value Factor (IWVL)
Value investing has been a poorly performing strategy for at least the last decade but that may change. That’s mainly because value stocks are at historically low valuations. There’s also the issue that value stocks often perform coming out of a market slump. Clearly, markets are still fairly buoyant at the moment, if a little nervous, but building up some value investments could put you in an advantageous position in a couple of years.
I’ve picked this iShares World Value ETF because the charges are relatively low at 0.3% and the tracking difference is also on the low side.
The regional breakdown is very different from the Vanguard FTSE All World ETF. US stocks form a much smaller proportion of the fund – that’s further evidence that the US market is on a pretty rich valuation at the moment.
Region/Country% of ETFUS35.7%Japan27.6%Eurozone17.4%UK10.4%
EMERGING MARKETS
I think most investors should have some exposure to emerging markets. These markets have the potential for higher growth, and they don’t fully correlate with more developed markets.
iShares Core MSCI EM IMI UCITS ETF (EMIM)
This ETF gives you some exposure to smallcaps as they comprise 5% of the overall index. The index is quite heavily weighted towards China at 30% and that weighting is likely to increase as more Chinese ‘A’ shares (listed on the mainland) are admitted to MSCI EM indices.
The other attraction is a low ongoing charge at 0.18%. Here’s the breakdown of weightings for different countries:
Country% of ETFChina30.6South Korea13.5Taiwan12.1India9.9Brazil6.9South Africa5.9Russia3.4
For more emerging markets investment ideas, check out Four top emerging markets ETFs.
Be careful out there!
As I said at the beginning, this isn’t a recommended portfolio, it’s just a few ideas. I haven’t included any fixed income ETFs nor any commodity ones. If you are building a portfolio from scratch, you probably should get some exposure to those asset classes.
