Yahoo Finance Our pick of the 10 best ETFs for passive investors who want low-cost funds
The dramatic growth of “passive” funds has been one of the defining features of the past decade. Scepticism over the ability of fund managers to beat the market has pushed investors towards exchange-traded funds (ETFs), listed funds that offer cheap access to almost all markets.
But there are thousands to choose from and several considerations to make. What benchmark is the ETF trying to mimic? How well does it track it? What are the charges and how easy and costly is it to buy shares?
Telegraph Money has dug through this minefield to give you our 10 favourite ETFs.
1. SPDR FTSE UK All Share
The fund provides very broad exposure to British stocks by tracking the FTSE All-Share index, which includes nearly 600 companies. It is very good at mimicking the index and is easy to trade. It is not the cheapest ETF to cover this market, but rival funds are much smaller and are less accurate at tracking the index.
Ongoing charge: 0.2pc a year
2. iShares Core FTSE 100
This tracks London’s main benchmark, the FTSE 100, at a very low cost. Lynn Hutchinson of Charles Stanley, a wealth manager, said it matched the returns of the index even after costs. It is cheap to own and its size (£8.3bn) means there are plenty of shares trading on the market.
Ongoing charge: 0.07pc a year
3. SPDR S&P UK Dividend Aristocrats
The British stock market is one of the best in the world for dividends and this ETF aims to exploit this for income investors. It follows an S&P index that includes 39 companies. However, stocks must have increased or maintained dividends for at least seven years. This offers some protection from potential dividend cuts. It has a good record of matching market returns while yielding 4.1pc.
Ongoing charge: 0.3pc a year
4. Vanguard FTSE 250
This fund gives investors a chance to own Britain’s smaller but often faster-growing companies at a fraction of the cost of actively managed funds. It tracks the FTSE 250 index and has a great performance record, while its £2.6bn size means it is easy to trade.
Ongoing charge: 0.1pc a year
5. iShares Core S&P 500
This is the biggest ETF listed on the London market, with nearly £29bn in assets. The fund mimics the S&P 500 index, which covers around 80pc of the American stock market.
Ms Hutchinson said the fund tended to return more than the index, thanks to tax arrangements. Because of its size it is incredibly cheap to own – it costs just 7p a year for every £100 invested.
Ongoing charge: 0.07pc a year
6. HSBC MSCI World
This is one of the cheapest ways for investors to get broad exposure to more than 1,500 companies across 23 different countries. It has more than £1bn in assets and is easy to buy. The fund is also very good at tracking the MSCI World index and occasionally returns more than the benchmark.
The fund excludes stocks involved in selling weapons banned by international treaties.
Ongoing charge: 0.15pc a year
7. SPDR S&P Global Dividend Aristocrats
Like its peer for British companies, this ETF owns stocks that have grown dividends in a sustainable and consistent way. Its criteria are stricter, with stocks having to show a 10-year record.
The fund currently owns 98 companies and can choose from more than 46 countries. It yields 3.5pc but has returned less than the vanilla MSCI World index, owing to a lower allocation to the American market.
Ongoing charge: 0.45pc a year
8. Vanguard FTSE Developed Europe ex-UK
Portfolios should be diversified and Europe provides exposure to world-leading engineering and healthcare companies and the global economy. This tracks an index that covers nearly 500 large and small stocks from 15 European countries. At £1.4bn it is also easy to trade.
Ongoing charge: 0.1pc a year
9. iShares Core MSCI Emerging Markets IMI
This ETF provides exposure to a benchmark that includes nearly 3,000 companies across 26 different emerging markets. James McManus of Nutmeg, an online wealth firm, said the fund was incredibly efficient at tracking the index and had a
low charge. It has more than £14bn in assets and is easy to trade, with a great track record of following its benchmark.
Ongoing charge: 0.18pc a year
10. iShares Global Aggregate Bond GBP Hedged
After a decade of record-low interest rates, investors may think bond markets are expensive, but exposure to these assets remains useful if and when stock markets go south. This ETF covers global bond markets like no other, tracking an index that includes 20,000 bonds via a sample of 5,000. It converts returns into pounds to remove currency risk and has more than £3bn in assets, making it very easy to buy.
Ongoing charge: 0.1pc a year
