The Top 50 ETFs was created in summer 2014 as a list of long-term building blocks for your portfolio. The list is designed to be a toolkit of useful and cost-effective exchange traded funds (ETFs). These are passive funds that are traded on the stock market and are growing in popularity among private self-directed investors. In 2014, we first identified the best indices to track and then went in search of minimal tracking difference, low costs and good liquidity for each ETF selection.
This year we have fine-tuned the selection by asking a panel of six expert ETF analysts to make recommendations. Our panel members are:
■ Christopher Aldous, managing director at Charles Stanley Pan Asset
■ ShaunPort, chief investment officer at Nutmeg
■ Adam Laird, passive investment manager at Hargreaves Lansdown
■ Alan Miller, chief investment officer and founder of SCM Direct
■ Ben Seager-Scott, director, investment strategy at TilneyBestinvest
■ Paul Taylor, chief executive officer at McCarthy Taylor
We asked our experts:
a) Are there any products on the list that you think shouldn't be there.
b) Are there any products that are really useful (or much cheaper) and should be considered.
We have also taken into account the many articles and recommendations on ETFs that the IC funds team has written over the past two years. This year’s selection includes 29 new products, which reflects the increased competition on charges and innovation within the industry.
Mr Seager-Scott says: “I think there are two different areas I think about when making my recommendations. Firstly, for the large, main indices which are all about volumes, we’ve seen an intensification of the price war so some of these are even cheaper than last year, as there’s not really much more you can do for these types of offerings. Second is the ever increasing range of ETFs out there as increasingly these provide options for either very targeted exposure (such as single-country or single sector) or some of the more sophisticated ‘smart beta’ strategies.”
Mr Miller says: “A substantial positive for those seeking to invest via ETFs is that the market continues to open up, with intense price competition between providers, which has resulted in significant price reductions for many of the standard index based products. This has been coupled with new and existing providers continuing to innovate and introducing a number of new ETFs, sometimes referred to as smart-beta products.”
GOVERNMENT BONDS (five funds)
We have revamped this section to make the range cheaper and broader in scope.
DROPPED FROM 2014 SELECTION:
iShares UK Gilts UCITS ETF (IGLT)
iShares UK Gilts 0-5yr UCITS ETF (IGLS)
iShares Global Government Bond UCITS ETF (IGLO)
NEW: Vanguard UK Government Bond UCITS ETF (VGOV)
This seeks to track the performance of the Barclays Global Aggregate UK Government Float Adjusted Bond Index, a market-weighted index of UK Government fixed-income securities denominated in Pound Sterling. The fund uses physical replication method to track the index. It will invest in a portfolio of fixed income securities with greater than 1 year maturity (for example UK Gilts, debt guaranteed by national government and its agencies) that so far as possible and practicable consists of a representative sample of the component securities of the Index. Its total expense ratio (TER) is 0.12 per cent. Shaun Port says: “This is 8bps cheaper than IGLT for similar, albeit slightly longer duration exposure and no securities lending.” It also comes recommended by Christopher Aldous.
NEW: SPDR Barclays 1-5 Year Gilts (GLTS)
The objective of the SPDR Barclays 1-5 Year Gilt UCITS ETF is to track the performance of the short-dated UK government bond (Gilt) market. It aims to do this by tracking the Barclays UK Gilt 1-5 Year Index as closely as possible. Its TER is 0.15 per cent.
Alan Miller says: “The maturity is 1-5 years (a marginally higher yield) instead of 0-5 years on the iShares product, but it charges 0.05 per cent less.” Shaun Port say that compared to the iShares product, it has “lower ongoing costs, strong tracking performance, no securities lending and a higher yield to maturity.”
NEW: iShares £ Index-linked Gilts UCITS ETF (INXG)
This aims to track the performance of the Barclays UK Government Inflation-Linked Bond Index as closely as possible. The ETF invests in physical index securities. The Barclays UK Government Inflation-Linked Bond Index offers exposure to Sterling denominated inflation-linked bonds. Only bonds that are capital-indexed, linked to an eligible inflation index, have a minimum remaining time to maturity of one year and a minimum amount outstanding of £300 million are included in the index. Alan Miller says: “An alternative to plain vanilla gilts, this offers an element of protection from rising inflation.” Adam Laird and Christopher Aldous also recommended that this product be included in the selection. Its TER is 0.25 per cent.
NEW: db x-trackers II Global Sovereign UCITS ETF 2D(GBP HEDGED)(XGSG)
This ETF aims to track the performance of the DEUTSCHE BANK Global Investment Grade Government Index, which represents the majority of the world sovereign debt market. The Index currently covers sovereign debt from 20 developed countries. It replicates the index indirectly using a swap. Its TER is 0.25 per cent. Alan Miller recommended it as a better alternative to iShares Global Government Bond as for an extra 0.05 per cent it offers GBP hedging.
NEW: iShares JPMorgan $ Emerging Markets Bond UCITS ETF (SEMB)
Christopher Aldous and Adam Laird both suggested we broaden the selection by introducing some emerging market government bonds. This ETF aims to track the performance of the JPMorgan Emerging Markets Bond Index Global Core Index which offers exposure to US Dollar denominated sovereign and quasi-sovereign bonds from Emerging Markets countries. Only bonds with a minimum remaining time to maturity of two and a half years at inclusion and a minimum amount outstanding of $500 million are included in the index. The ETF invests in physical index securities and its TER is 0.45 per cent.
CORPORATE BONDS (four funds)
The part bond funds play in your portfolio depends on your financial objectives and attitude to risk. However, most investors should have a portion of capital allocated to corporate bonds – especially if income is your objective. Many investors want to diversify their bond exposure overseas as well as their equity exposure.
DROPPED FROM 2014 SELECTION:
Pimco Sterling Short Maturity Source ETF (QUID)
iShares Global High Yield Bond Corporate Bond UCITS ETF (HYLD)
iShares £ Corporate Bond UCITS ETF (SLXX)
iShares £ Corporate Bond 1-5yr UCITS ETF (IS15)
Short term bonds are less responsive to interest rate changes and this ETF will be less affected than the iShares Corporate Bond UCITS ETF (SLXX) should overall yields move upwards. IS15 aims to track the performance of the Markit iBoxx £ Corporates 1-5 Index which offers exposure to Sterling denominated corporate bonds with an expected remaining time to maturity between 1 and 5 years. The index includes only investment grade bonds with a minimum amount outstanding of £100 million. IS15 has more than 200 holdings and is replicated using the sampling method. The TER is 0.20 per cent. Alan Miller says: “This is a core holding with an efficient yield/duration risk profile.”
NEW: iShares £ Ultrashort Bond UCITS ETF (ERNS)
This aims to track the performance of the Markit iBoxx GBP Liquid Investment Grade Ultrashort Index which offers exposure to short maturity corporate bonds and quasi sovereign bonds that are Sterling denominated and meet a minimum credit-rating of investment grade, as determined by independent credit rating agencies. The index covers fixed-rate bonds maturing between 0 and one year and floatin- rate securities with a time to maturity between 0 and three years. The index uses a market-value weighted methodology with a cap on each issuer of 4 per cent. The ETF invests in physical index securities and has an ultra-low TER of 0.09 per cent, making it much cheaper than our previous selection in this space, Pimco Sterling Short Maturity Source ETF (QUID), which has a TER of 0.35 per cent. Alan Miller recommends it as a “useful money market proxy”.
iShares Global Corporate Bond UCITS ETF (CRPS)
This aims to track the performance of the Barclays Global Aggregate Corporate Bond Index which offers exposure to investment-grade corporate fixed-rate bonds issued by corporations in emerging and developed markets worldwide, with a minimum maturity of at least 1 year. The ETF invests in physical index securities and has a TER of 0.20 per cent. Note the base currency for this ETF is US dollars so there is exchange rate risk. It distributes the income semi annually.
NEW: iShares Global High Yield Corporate Bond GBP Hedged (GHYS)
This aims to track the performance of the Markit iBoxx Global Developed Markets Liquid High Yield Capped (GBP Hedged) index, which is designed to provide a balanced representation of the global developed high yield corporate market by the means of the most liquid high yield corporate bonds available. The ETF invests in physical index securities which are hedged on a monthly basis to the base currency of the fund. It has a TER of 0.55 per cent. The product was recommended by Alan Miller and Christopher Aldous.
PRECIOUS METALS (two funds)
DROPPED FROM 2014 SELECTION:
ETFS Physical Gold ETC (PHGP) and Db Physical Gold GBP Hedged ETC (XGLS) were both dropped because their charges are higher than the Source gold product. XGLS in particular has a swap charge which makes it expensive.
Source Physical Gold ETC (SGLD)
This aims to provide the performance of the spot gold price through certificates collateralised with gold bullion. Each Gold P-ETC is a certificate which is secured by gold bullion held in JPMorgan Chase Bank’s London vaults. SGLD’s tracking difference was excellent over the periods we looked at and we felt its transparency was commendable, too. Its TER is 0.29 per cent. SGLD is traded in US dollars.
NEW: Source Physical Silver P-ETC (SSLV)
This aims to provide the performance of the spot silver price through certificates collateralised with silver bullion. Each Silver P-ETC is a certificate which is secured by silver bullion held in J.P. Morgan Chase Bank's London vaults. Adam Laird says: “Silver is very popular with individuals and gives diversity when holding precious metals in a portfolio.” Its TER is 0.39 per cent.
US EQUITIES (five funds)
The US really lends itself to passive investing as there are few US active managers who have consistently beaten their market. US ETFs track different indices containing selections of US-listed companies ranked in different ways. The most popular is the S&P 500 index, which tracks the largest US companies according to their share price. This year we have extended the coverage of US smaller companies.
DROPPED FROM 2014 SELECTION:
SPDR S&P 500 ETF (SPX5)
NEW: Vanguard S&P 500 UCITS ETF (VUSA)
This aims to track the performance of the S&P 500 index, a widely recognised benchmark of US stock market performance that is comprised of the stocks of large US companies. It uses physical replication and its TER is 0.07 per cent. It comes recommended by Ben-Seager Scott, Christopher Aldous and Shaun Port all suggested that we use this ETF in place of the SPDR S&P 500 ETF (SPX5). Shaun Port says “It has significantly lower fees and very tight tracking performance with strong liquidity and no securities lending.”
db x-trackers Russell 2000 UCITS ETF 1C (XRU2)
This aims to track the performance of the Russell 2000 index, which provides exposure to a wide range of US smaller companies, including many of the technology start-ups that have experienced meteoric rises in recent years. The ETF uses indirect replication via an underlying portfolio and swap structure. It has tracked its index well and has a TER of 0.45 per cent. The ETF reinvests the income. Alan Miller says: “This is a well-diversified ETF investing in US small-cap companies.”
PowerShares EQQQ Nasdaq-100 UCITS ETF (EQQQ)
This is designed to track the performance of 100 of the largest non-financial companies listed on the Nasdaq stock exchange. About 60 per cent of the Nasdaq’s constituents are technology companies, with some healthcare and consumer stocks thrown into the mix too. This is a fully physically replicated ETF with a total expense ratio of 0.3 per cent and a base currency of US dollars. Alan Miller says: “This is perfect for specific Nasdaq exposure.”
SPDR S&P US Dividend Aristocrats UCITS ETF (USDV)
This is based on the S&P High Yield Dividend Aristocrats Index, which is designed to measure the performance of companies within the S&P Composite 1500 that have followed a managed dividends policy of consistently increasing dividends every year for at least 20 years. It is physically replicated ETF and has a total expense ratio of 0.35 per cent.USDV distributes income on a quarterly basis, making it a good option for income investors.
NEW: WisdomTree US SmallCap Dividend UCITS ETF (DESE)
This tracks a non-market capitalisation weighted index with broad exposure to dividend paying US small-cap equities. Securities are weighted in the index to reflect the proportionate share of the aggregate cash dividends each company is projected to pay in the coming year, based on the most recently declared dividend per shares. Companies projected to pay more dividends are more heavily weighted. The ETF is physically replicated and its TER is 0.38 per cent.
UK EQUITIES (Five funds)
These UK equity ETFs can be used as core holdings for your portfolio. But bear in mind that most UK investors have too much of a ‘home’ bias in their portfolios. You should make sure that you also have exposure to overseas equities.
Dividends are very important for equity investors seeking income. But for growth investors they can also be reinvested to boost growth over time.
Two of our experts thought the small-cap ETF that we had in the section wasn’t useful as it had too much exposure to the FTSE 250 index.
Dividends are important for equity investors seeking income. But for growth investors they can also be reinvested to boost growth over time, so UK equity income funds can be used as core holdings. Investors with large direct holdings in FTSE 100 companies should watch any overlap with their existing portfolio. Note that two of our experts disagree on which product is best in this space.
DROPPED FROM 2014 SELECTION:
iShares FTSE 100 UCITS ETF Acc (CUKX)
iShares MSCI UK Small Cap UCITS ETF GBP (CUKS)
NEW: iShares Core FTSE 100 UCITS ETF (ISF)
There is a huge amount of choice for ETFs that track the FTSE 100 index of the UK’s leading companies. Ben Seager-Scott says this product, part of iShares new Core range of low-cost products, is a better version than the iShares FTSE 100 UCITS ETF Acc (CUKX) that we previously had in the selection. He says: “The TER the same as the Acc version but the distributing share class has significantly greater liquidity on exchange meaning the bid-offer spread costs tend to be a lot more attractive.”
ISF uses physical replication to track the index and has a TER of just 0.07 per cent. Christopher Aldous and Alan Miller also recommend this product.
SPDR FTSE UK All Share UCITS ETF (FTAL)
This uses physical optimised sampling to track the performance of the FTSE All Share, which means it may hold much fewer holdings than the constituents of the index. Although this index casts a wider net than the FTSE 100 it is still focused on mega-cap blue-chips. It’s not actually all the market as the title may imply. Although it includes the FTSE 100, the FTSE 250 and the FTSE Small Cap, it doesn’t include microcaps in the FTSE Fledgling Index. There are more than 600 constituents of the FTSE All Share and the ETFs that follow this index don’t hold all of them. The ETF has a TER of 0.20 per cent. Alan Miller says: “We think this is the best All-share ETF available.”
NEW: Vanguard FTSE 250 ETF (VMID)
This seeks to track the performance of the FTSE 250 Index, a widely recognised benchmark of UK mid-cap sized companies. Shaun Port and Christopher Aldous recommended VMID as much cheaper than the db x-trackers FTSE 250 product that we previously had in the selection. Mr Port says it has “very tight tracking performance with strong liquidity”. It uses physical replication and has a TER of 0.10 per cent.
iShares UK Dividend UCITS ETF (IUKD)
This aims to track the performance of the FTSE UK Dividend+ Index as closely as possible. This means it tracks the 50 highest-yielding stocks of the 350 biggest companies (excluding investment trusts) on the London Stock Exchange. Stocks are selected and weighted by one-year forecast dividend yield. It’s a sensible option for investors looking for an income as it tracks the firms with the lowest share price relative to the dividend they pay. It is physically replicated and has a TER of 0.4 per cent. It distributes the income to investors. Alan Miller says: “iShares IUKD has outperformed S&P UK Dividend Aristocrats year to date. It also tends to offer more yield and less fundamentally overvalued constituents.”
SPDR S&P UK Dividend Aristocrats UCITS ETF (UKDV)
This aims to track the performance of 30 high dividend-yielding equity securities issued by companies from within the UK. It aims to do this by tracking the performance of the S&P UK High Yield Dividend Aristocrats Index as closely as possible. The S&P UK High Yield Dividend Aristocrats Index is designed to measure the performance of the 30 highest dividend-yielding UK companies within the S&P Europe Broad Market Index (BMI), as determined in accordance with the Index methodology, that have followed a managed dividends policy of increasing or stable dividends for at least 10 consecutive years. So this is about historical dividend record rather than forecasting. Its TER is 0.30 per cent. It is physically replicated and distributes the income to investors. Shaun Port says: “We prefer UKDV to IUKD given the persistency of dividends in the methodology, and no use of forecasts. Also it does no securities lending and has 10bps less fees.”
GLOBAL EQUITY (five funds)
A broadly diversified global equity ETF can make a great low-cost core holding for your portfolio. Most British investors are far too biased towards UK stocks and these ETFs will help your portfolio have instant diversification in one index. Although UK equities are a great source of income, UK investors should also look to diversify their income sources overseas.
DROPPED FROM THE 2014 SELECTION:
Db x-trackers FTSE All-World Ex UK UCITS ETF (XWXU)
Db x-trackers SToxx Global Select Dividend 100 UCITS ETF (XGSD)
Lyxor ETF SG Global Quality Income NTR C-GBP (SGQL)
NEW: Vanguard FTSE All-World ETF (VWRL)
This aims to track the performance of the FTSE All World index which comprises large and mid-cap stocks from developed and emerging markets worldwide, covering more than 2900 companies. This product is much cheaper than the db x-trackers product (XWXU) that we previously had in the selection. Its TER is just 0.25 per cent. Recommended by Christopher Aldous, it will provide instant diversification for your portfolio and although is not an ex-UK index, has just 7 per cent exposure to the UK.
iShares Core MSCI World UCITS ETF Acc (SWDA)
This tracks the performance of the MSCI World Index, which includes more than 1,600 stocks from 23 developed markets, including the UK. It is often used as a common benchmark for actively managed 'world' or 'global' equity funds. However, it excludes stocks from emerging and frontier economies making it less worldwide than the name suggests. This may appeal to investors with lower appetite for risk.
SWDA uses physical optimisation, meaning it doesn’t hold all the stocks in the index and its TER is 0.20 per cent. Alan Miller says: “This is one of the highly effective iShares ‘Core’ products, although investors may wish to have a more targeted equity exposure to specific regions/counties.”
PowerShares FTSE RAFI All World 3000 UCITS ETF (PSRW)
This invests in an index put together by FTSE and RAFI that focuses on companies’ economics and disregards their stock market value, so it can find cheap stocks. The ETF is designed to track the performance of global equities based on the following four fundamental measures of firm size: book value, cash flow, sales and dividends.
The 3,000 equities with the highest fundamental strength based on the composite four factor approach are weighted by their fundamental scores. It has a TER of 0.5 per cent.
NEW: Vanguard FTSE All-World High Dividend Yield UCITS ETF (VHYL)
This tracks the performance of the FTSE All-World High Dividend Yield Index, a free float adjusted market capitalisation weighted index of common stocks of companies, excluding real estate trusts, in developed and emerging markets that pay dividends that are generally higher than average. This ETF is a cheaper option than the db x-trackers’ XGSD that was previously in the selection. Its TER is 0.29 per cent.
NEW: Amundi Global Equity Multi Smart Allocation Scientific Beta UCITS ETF (SMRP)
The previous selection of Lyxor’s Global Quality Income ETF (SGQL) has an interesting methodology but has underperformed the MSCI World Index. Alan Miller recommends SMRP, one of the new generation of smart beta ETFs, in its place. He says: “This ETF combines a number of different factors within its methodology and offers a much more balanced style and strategy.”
SMRP gives investors exposure to multiple equity risk factors which have been shown to offer investors rewards over the long term. The aim of the index is to outperform developed equity market-cap indices, through systematic and consistent factor exposure together with a diversified portfolio weighting process. The ETF has a TER of 0.40 per cent.
JAPAN (three funds)
The Japanese stock market has seen a renaissance in recent years and as the Tokyo Stock Exchange is one of the world’s biggest stock exchanges by market capitalisation, you should have some exposure in your portfolio. Ben Seager-Scott says: “Currency hedging is a new theme, particularly yen, given the QE money printing going on there.” So you need to take a view on whether you are going to hedge the yen exposure or not.
DROPPED FROM 2014 SELECTION:
Db x-trackers MSCI Japan Index UCITS ETF (XMJG)
Vanguard FTSE Japan UCITS ETF (VJPN)
This aims to track the performance of the FTSE Japan index using physical replication. Its base currency is US dollars and it distributes the income quarterly. It has a TER of 0.19 per cent. Our experts use this for unhedged exposure to Japan equities.
NEW: UBS ETF – MSCI JAPAN 100% HEDGED TO GBP UCITS ETF(UC62)
This ETF is incorporated in Luxembourg and aims to deliver the net total return performance of the MSCI Japan 100% hedged to GBP and allow intraday trading. Its TER is 0.45 per cent. Shaun Port says: “We use UC62 (UBS MSCI Japan GBP hedged) to allow us to implement a view on the Japanese market whilst neutralising Yen exposure.” It is also recommended by Christopher Aldous.
iShares MSCI Japan Small Cap UCITS ETF (ISJP)
This aims to track the performance of the MSCI Japan Small Cap Index by investing in physical index securities. It has a TER of 0.58 per cent. Alan Miller says: “For small-cap exposure, this is the only available current option.”
EUROPE (five funds)
The main European indices are the Euro Stoxx 50, which invests in selected 50 blue-chip companies in the 12 eurozone countries and the MSCI Europe – a broader index that tracks stocks in the 18 European nations. The MSCI Europe won’t offer you a pure continental Europe fund, which you might want because of the stark differences between the UK and Europe. If you want to exclude the UK, plump for the Euro Stoxx 50, or you can get exposure through an ex-UK MSCI Europe fund.
Mr Seager-Scott also suggests that investors in Europe ETFs consider currency hedging against the backdrop of QE.
DROPPED FROM 2014 SELECTION:
HSBC Euro Stoxx 50 UCITS ETF (H50E)
iShares MSCI Europe ex-UK UCITS ETF (IEUX)
Source Man GLG Europe Plus ETF (MPFE) Alan Miller says: “There is very high level of trading and costs and the recent record is not at all good.”
db x-trackers MSCI EUROPE SMALL CAP INDEX UCITS ETF (DR) 1C GBP (XXSC)
db x-trackers Euro Stoxx 50 UCITS ETF (XESC)
This aims to track the Euro Stoxx 50 index as closely as possible. The ETF invests in physical index securities and has a TER of 0.09 per cent. It reinvests the income from the underlying securities into the fund so is more suited to growth investors.
NEW: UBS MSCI EMU Hedged GBP UCITS ETF (UC60)
The fund generally invests in European large and mid-cap stocks which are contained in the MSCI EMU index. It also sells currency forwards to minimise the impact of currency fluctuations between euro and sterling. Shaun Port says this provides “cost effective hedged exposure to the Eurozone”.
NEW: Vanguard FTSE Developed Europe ex UK (VERX)
This seeks to track the FTSE Developed Europe ex UK Index, a widely recognised market capitalisation-weighted index of stock market performance of European developed countries, excluding the United Kingdom, that is comprised of the stocks of large and mid-cap companies in that region.
It uses physical replication and has a TER of 0.12 per cent. Shaun Port says this product is “significantly cheaper, more diversified and less likely to trade at persistent discount” when compared to the iShares product (IEUX) that we previously had in this selection.
NEW: iShares MSCI Europe Value Factor UCITS ETF (IEFV)
This tracks the MSCI Europe Enhanced Value Index, a subset of securities selected from the MSCI Europe Index based on three main equally weighted indicators of whether equity securities of a company provide good value:
1. Comparing the price of an equity to estimated future earnings (based on a consensus of analysts’ views published by an industry recognised third party source)
2. The price of an equity relative to the book value of the company; and
3. Enterprise value (a measure of a company’s value, incorporating debt and equity) of a company relative to its operating cash flow, save that enterprise value is not used as an indicator of good value for financial sector companies due to their capital structure.
Paul Taylor, who recommended the product, says: “Physical replication is used, which is our preferred passive approach. The TER is only 0.25 per cent, so not expensive at all for a more sophisticated passive strategy.”
NEW: Wisdom Tree Europe SmallCap Dividend (DfE)
This aims to track performance of the WisdomTree Europe SmallCap Dividend Index, a fundamentally weighted index that measures the performance of the small-capitalisation segment of the European dividend-paying market. The Index is comprised of the bottom 25 per cent of the market capitalisation of the European companies from the WisdomTree DEFA Index after the 300 largest companies have been removed. Companies are weighted in the Index based on annual cash dividends paid. Its TER is 0.38 per cent. Alan Miller says that the fund offers an attractive yield at a similar cost to the db x-trackers product (XXSC) that we previously had in the selection.
ASIA (three funds)
The Asia Pacific region is more diverse than most investors realise. There are the emerging markets of China, India and Thailand, the developed economy of Japan, and Australia and New Zealand where investors can find good yield opportunities.
DROPPED FROM 2014 SELECTION:
iShares Asia Pacific Dividend UCITS ETF (IAPD)
Db x-trackers MSCI AC Asia Ex Japan High Dividend Yield Index UCITS ETF 1D (XAHG)
This is a broad Asian dividend ETF with almost 200 stocks represented. The benchmark index includes only securities that offer a higher than average dividend yield relative to the MSCI AC Asia ex Japan Index and that pass dividend sustainability screens. It’s a synthetic fund, constructed using a fully funded collateralised swap and its TER is 0.65 per cent.
NEW: SPDR S&P Pan Asia Dividend Aristocrats UCITS ETF (PADV)
This aims to track the performance of high dividend yielding equities from the Asia Pacific region. The S&P Pan Asia Dividend Aristocrats Index measures the performance of companies within the S&P Pan Asia Broad Market Index (BMI) that have followed a policy of consistently increasing dividends every year for at least seven consecutive years. Alan Miller says that PADV is marginally cheaper when compared to the iShares product (IAPD) that we previously had in the selection, plus it has broader diversification (70 vs 30 companies) and better historic performance.
iShares MSCI AC Far East ex-Japan SmallCap UCITS ETF GBP (ISFE)
This aims to track the performance of the MSCI AC Far East ex Japan Small Cap Index as closely as possible. The ETF invests in physical index securities. The MSCI AC Far East ex Japan Small Cap Index offers exposure to East Asian small-cap stocks which rank below the MSCI AC Far East ex Japan Index measured by market capitalisation and comply with MSCI's size, liquidity, and free float criteria. East Asia is defined as Asia excluding India. The TER is 0.74 per cent and the ETF uses physical optimised replication to track the index. It distributes the income. Alan Miller says: “This is the only Asia Pacific Small Cap ETF listed in London currently.”
EMERGING MARKETS (seven funds)
Emerging markets are high risk, being traditionally the hardest his when there is a wider market sell-off. The funds highlighted below will give you plenty of diversification in these high risk markets.
DROPPED FROM 2014 SELECTION:
Vanguard FTSE Emerging Markets ETF (VFEM)
Db x-trackers Harvest CSI 300 Index UCITS ETF (RQFI)
Db x-trackers MSCI Russia Capped Index UCITS ETF 1C GBP (XMRC)
iShares Core MSCI Emerging Markets ETF (EMIM)
This aims to track the performance of the MSCI Emerging Markets IMI Index, which offers exposure to large, mid and small-cap stocks from emerging markets worldwide which comply with MSCI's size, liquidity, and free float criteria. It uses physical optimised replication methodology and its TER is 0.25 per cent. Alan Miller says EMIM is better diversified than the Vanguard product that we previously held in the selection (VFEM), holding medium sized as well as large companies.
iShares MSCI Emerging Markets Minimum Volatility (EMV)
This aims to reflect the performance of a subset of securities within the MSCI Emerging Markets Index with the lowest absolute volatility of returns, subject to risk diversification. It is traded in US dollars on the London Stock Exchange. The ETF replicates index performance by physical optimised methodology. It reinvests income and its TER is 0.40 per cent. This is for investors who want a smoother ride in emerging markets. Alan Miller says: “It offers broad diversification and an alternative to a traditional market cap weighted index ETF and has performed very well.
NEW: iShares MSCI China A (IASH)
This aims to track the performance of the MSCI China A International Index, which consists of the A share component of the MSCI China All Shares Index. It is designed to provide representation of the securities of large and mid-capitalisation companies that are incorporated in the People’s Republic of China (PRC) and traded in Renminbi on the Shanghai and Shenzhen Stock Exchanges. Alan Miller says: “This geographic segment has evolved and IASH is now the most attractive option.” IASH has a TER of 0.65 per cent, making it much cheaper than the db x-trackers product (RQFI) that we previously held in this space. It invests in physical index securities.
HSBC MSCI Brazil ETF (HBRL)
This tracks the performance of the MSCI Brazil index, which is designed to measure the performance of the large and mid-cap segments of the Brazilian market. It is the cheapest Brazil ETF with a TER of 0.60 per cent and has tracked its index well using physical replication. Note the ETFs base currency is US dollars.
NEW: HSBC MSCI Russia Capped UCITS ETF (HRUB)
This enables you to track the Russian stock market but with less exposure to the oil and gas sectors. The index is composed of the constituents of Russia’s standard index, the MSCI Russia Index. However, constituents whose weights are greater than curtail levels in the index are capped. The ETF uses full physical replication of the index and has a TER of 0.6 per cent. We introduced this in favour of the db x-trackers product because it is cheaper and is physical rather than synthetic.
Db x-trackers MSCI India Index UCITS ETF 1C (XCX5)
This aims to track the MSCI India Total Return Index, which includes ordinary shares of all large and mid-cap companies with a market capitalisation within the top 85 per cent of the Indian stock market. Dividends are reinvested and the TER is 0.75 per cent.
NEW: SPDR MSCI Emerging Markets Small Cap ETF (EMSM)
This aims to track the performance of the MSCI Emerging Markets Small Cap Index, a free float adjusted market capitalisation index that is designed to measure equity market performance of small companies from emerging markets.
BROAD COMMODITIES (three funds)
Commodities are a very high risk and volatile investment area, but a broadly diversified commodity ETF can help to lower that risk.
DROPPED FROM 2014 SELECTION:
db x-trackers DBLCI OY Balanced Ucits ETF (XDBG)
ETFX DJ-UBS Longer Dated All Commodities GO UCITS ETF (CMFP)
ETFS Industrial Metals DJ-UBSCI (AIGI)
NEW: Lyxor UCITS ETF Commodities Thomson Reuters/CoreCommodity (CRBL)
This aims to replicate the performance of the Thomson Reuters/Jefferies CRB Total Return index which comprises 19 commodities: Aluminium, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat. The performance of the ETF is generated by a Performance Swap and it has a TER of 0.35 per cent, less than the db x-trackers product (XDBG) that we previously had in the selection but for a similarly diversified commodity investment.
NEW: Source LGIM Commodity Composite UCITS ETF (LGCF)
This aims to track performance of the LGIM Commodity Composite Index which is designed to offer high quality, diversified and tradable exposure to the global commodity market and comprises a minimum of three constituent indices, selected from a universe of broad commodity indices.
The ETF has a TER of 0.85 per cent comprised of a 0.40 management fee, plus a 0.45 per cent swap fee. This makes it cheaper than the ETFS Securities product (CMFP) that we previously had in the selection. Alan Miller says: “Source LGIM Commodity Composite ETF (LGCF) is an interesting option using a thoughtful commodity index that utilises an innovative method of reducing the hidden costs associated with commodity investment.”
NEW: ETFS GBP Daily Hedged Industrial Metals (PIMT)
This is an exchange traded commodity that gives access to the performance of four industrial metals: Copper, Aluminium, Zinc and Nickel. It is designed to provide investors with a total return exposure to commodity futures with a daily currency hedge against movements in the GBP/USD exchange rate by tracking the Bloomberg Industrial Metals Subindex Pound Sterling Hedged Daily and providing a collateral yield. This is a synthetic product, being fully funded by a collateralised swap. Its TER is 0.49 per cent. Paul Taylor says: “Our preference is to hedge out currency risk whenever possible. Consequently, instead of ETFS Industrial Metals, we would prefer ETFS GBP Daily Hedged Industrial Metals (PIMT). The cost of both is the same. However, you benefit from hedging out the currency risk.”
PROPERTY (two funds)
Because property ETFs buy shares rather than “bricks and mortar” property it means they are more likely to move in line with stock markets than the property market, and so may not provide as much diversification for your portfolio as a fund which directly invests in commercial properties.
DROPPED FROM 2014 SELECTION:
iShares UK Property UCITS ETF (IUKP)
NEW: iShares MSCI Target UK Real Estate UCITS ETF (UKRE)
This aims to replicate the return of the MSCI UK IMI Liquid Real Estate Index, which aims to offer liquid access to physical real estate through exposure to UK Real Estate Investment Trusts (Reits), property companies and liquid fixed income transferable securities. As Reits are typically leveraged investment vehicles, and Reits and property companies have a risk and reward profile similar with that of an equity security, UK Government inflation-linked bonds are used within the Benchmark Index to reduce the impact of leverage, volatility and the performance of equity markets on its returns. It is physically replicated and its TER is 0.40 per cent. Ben Seager Scott says: “It aims to reduce some of the equity-like volatility you get with Reit exposure.”
HSBC FTSE EPRA/NAREIT Developed UCITS ETF (HPRO)
This aims to track the performance of the largest real estate companies of the world’s developed equity markets, including the US, Japan, Hong Kong, Australia, Britain, Singapore, France and Canada. It uses full physical replication to track the benchmark index and has a TER of 0.40 per cent. Dividends are distributed quarterly in US dollars.
PRIVATE EQUITY
Private equity is an asset class consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange. It’s a high risk asset class but can be used to diversify your portfolio.
iShares Listed Private Equity UCITS ETF (IPRV)
This aims to track the performance of the S&P Listed Private Equity Index as closely as possible. The S&P Listed Private Equity Index offers exposure to the leading publicly listed companies that are active in the private equity space around the world and meet specific size, liquidity, and business activity requirements. It has a TER of 0.75 per cent and uses physical optimised replication to track the index.
