UK EQUITIES (ONE ETF)
Vanguard FTSE 250 UCITS ETF (VMID)
Some investors may want to decide their own weighting to UK mid-cap stocks rather than relying on that offered by all-cap ETFs recommended in the core section. If so, then this Vanguard ETF is the panel’s choice. This ETF was unanimously picked by the panel given its excellent tracking record, size and tradeability, and cost. The ETF has an ongoing charge of just 0.1 per cent, the cheapest around. Xtrackers offers a FTSE 250 ETF for 0.15 per cent, but this is far smaller, while an iShares product is closer in size but charges 0.4 per cent. The iShares ETF had rivalled Vanguard despite its significantly higher fee as it was superior in size, but in the past year VMID has overtaken it to become the largest, with over £1.2bn in assets.
US EQUITIES (THREE ETFs)
Dropped from the 2018 selection:
iShares Edge MSCI USA Value Factor UCITS ETF (IUVF)
The panel dropped this ETF because we decided to move away from recommending tilting towards value in individual markets. This ETF remains well-priced and good quality, but its strategy is not something we think belongs in a succinct list of recommended ETFs.
2019 selection:
iShares S&P SmallCap 600 UCITS ETF (ISP6)
US small-caps remain a great way to access the still-growing US economy and we continue to back this ETF because of the underlying index. The S&P SmallCap 500 index is designed to ensure stocks are liquid enough to be tradeable by an ETF, with underlying market liquidity being a big concern. It also measures stocks for positive earnings momentum, and balances out sectors to ensure no single industry becomes overly dominant. There are cheaper ETFs tracking different indices such as the Russell 2000 and the MSCI US Small Cap index; however the panel continues to favour this product for its methodology despite its 0.4 per cent charge. The iShares product is also one of the largest US small-cap ETFs around and the most easily tradeable.
Invesco EQQQ NASDAQ-100 UCITS ETF (EQQQ) (Previously called Powershares EQQQ NASDAQ-100)
The panel also recommended keeping in this ETF for investors wanting to get more specific access to the largest and fastest-growing US companies. The Nasdaq 100 index tracks the 100 largest non-financial US companies. This theme leans it towards technology, telecommunications, consumer stocks and biotech stocks, with the ETF listing Microsoft (US:MSFT), Amazon (US:AMZN) and Apple (US:AAPL) as its top three holdings. The Invesco product is not the largest tracking this index – that honour falls to iShares; however, it is the cheapest charging 0.3 per cent, and with over £2.3bn in assets, a negligible bid/offer spread and substantial share liquidity it is a standout product.
NEW: iShares Edge S&P 500 Minimum Volatility UCITS ETF (MVUS)
One area the panel thought passive investors could benefit from was a US equity minimum volatility tracker – which weights to stocks according to size, but also how much volatility share prices exhibit. These strategies can protect investors by falling less than the market in times of market stress. This ETF from iShares tracks the S&P 500 Minimum Volatility index, giving investors exposure to the mainstream US index but with some protection. When volatility is low, and markets are rising, this will underperform the S&P 500, though. iShares’ Edge range of alternative indices, including minimum volatility and value, was singled out by the panel. MVUS charges 0.2 per cent, in line with rival products, but is easily the largest ETF tracking a minimum volatility index and is easy and cheap to trade.
GLOBAL EQUITIES (THREE ETFs)
iShares MSCI World Small Cap UCITS ETF (WLDS)
Among global markets, small-caps have provided better returns than their larger peers over the long term, so investors may wish to include exposure to the large-caps of tomorrow, which can boost returns and reduce risk when held for long periods of time. This iShares ETF was brought into the list last year and retains its place as it remains the largest and cheapest option and benefits from iShares’ excellent portfolio management. It has an ongoing charge of 0.35 per cent and with over £600m in assets is efficiently run and easy to trade.
iShares Edge MSCI World Minimum Volatility UCITS ETF (MINV)
Minimum volatility strategies can make equity investing more appealing to cautious investors, with strategies theoretically able to manage down-markets better than plain market capitalisation modelled indices and ETFs. This product, part of the panel’s favoured iShares Edge range for alternative indices ETFs, was once again chosen for its performance, track record, cost, size and liquidity. It has an ongoing charge of 0.3 per cent, so is more expensive than investing in plain vanilla global equity indices, but in times of volatility it could be worth the extra cost. Xtrackers offers a marginally cheaper ETF at 0.25 per cent, but iShares wins out on total cost of ownership.
Vanguard Global Value Factor UCITS ETF (VVAL)
While we took away the value ETF from the US equity section, the panel supported keeping this global equity value ETF in the selection. It is possibly our most unusual inclusion, given it does not technically track an index, but is actively managed, Vanguard says. It uses quantitative analysis to pick and weight stocks based on their valuations, using price/book, price/earnings and estimated future earnings. Its benchmark is listed as the FTSE Developed All Cap index, but it does not aim to replicate this, but beat it. Value has struggled as a style since the start of 2019, leading the ETF to marginally underperform the index since launch in December 2015, but with a 0.22 per cent ongoing charge, good liquidity and a narrow bid/offer spread and the potential for future outperformance, this ETF remains a good value option.
JAPANESE EQUITIES (TWO ETFs)
Dropped from the 2018 selection:
Xtrackers Nikkei 225 UCITS ETF (XDJP)
This ETF Xtrackers ETF was removed as the panel decided the Nikkei 225 index was not the best index or methodology through which to have more concentrated exposure to Japan, and it has been replaced with a cheaper ETF that tracks a more sensible index.
2019 selection:
NEW: L&G Japan Equity UCITS ETF (LGJG)
This ETF was only launched in November 2018, but has already found popularity among investors and has amassed £72m in assets. It charges 0.1 per cent, which is more expensive than XDJP’s 0.09 per cent, but by tracking the Solactive Core Japan Large & Mid Cap index, the panel believes it is a superior product. The Solactive index is more focused than the iShares Core Japan product, with only 339 holdings and no small-cap exposure, covering about 85 per cent of the market, making it useful for investors wanting to manage their own exposure to the Japanese large/mid and small-caps. Despite being new, it already offers good liquidity and is cheap to trade, with Legal & General Investment Management having significant experience of managing passive funds, despite only recently expanding its suite of ETFs.
iShares MSCI Japan Small Cap UCITS ETF (ISJP)
The panel unanimously backed keeping this ETF because it is the standout product in tracking Japanese smaller companies. Over time, small-caps in Japan have exhibited lower volatility than large-caps and investors could benefit in terms of growth and risk by including them. While small-caps are included in the MSCI Japan IMI index this allows investors to manage their own allocation. The iShares ETF is large, liquid and tracks its index incredibly well. One sticking point is its 0.58 per cent charge. Mr McManus says it is an expensive choice, but is a good product that provides something very few other ETFs do.
EUROPEAN EQUITIES (TWO ETFs)
Removed from the 2018 selection:
UBS MSCI EMU Value UCITS ETF (UB17)
The panel all agreed this remained an excellent product that performed well and charged a fair fee at 0.25 per cent. However, we opted to drop this ETF in favour of one that tracks a slightly different index providing better exposure.
UBS ETF MSCI EMU Small Cap UCITS ETF (UB69)
This UBS ETF remains a standout product to track a European equity small-cap index, but the panel felt that this ETF and its exposure did not warrant a place in a succinct list of recommended ETFs.
2019 selection:
NEW: iShares Edge MSCI Europe Value Factor UCITS ETF (IEFV)
The panel decided to replace UB17 with this iShares product based on its underlying index, MSCI Europe Value, being superior to the MSCI EMU Value index. Both follow similar methodology in weighting towards large and mid-caps displaying value signs (based on price/book, dividend yield and forward earnings metrics). However, the EMU Value index only includes 10 countries inside the eurozone, whereas the Europe index includes 15 countries in Europe – including the UK – and getting exposure to UK value stocks via an ETF is not easy. The iShares ETF is also significantly larger and offers better trading spreads while charging the same 0.25 per cent.
SPDR S&P Euro Dividend Aristocrats UCITS ETF (EUDV)
European equities can be a good hunting ground for income investors and this SPDR product tracks the S&P Dividend Aristocrats index series like those selected for global and US equities. The index weights towards the 40 highest-dividend-paying stocks in the eurozone, but only those with a policy of maintaining or increasing dividends for 10 years or more. This remains the standout product for European equity income, charging 0.3 per cent, with excellent tracking record, good liquidity and trading costs.
ASIA PACIFIC EX JAPAN EQUITIES (ONE ETF)
SPDR S&P Pan Asia Dividend Aristocrats UCITS ETF (PADV)
As with Europe, Asia provides a good selection of dividend-paying companies and this ETF tracks 100 of the highest paying stocks with a track record of maintaining or increasing dividends for seven years or more. Asian income is not a hugely competitive space for ETFs and this remains a standout product. This ETF does charge substantially more than its peer products, with an ongoing charge of 0.55 per cent, but is the only Asian income ETF and has a good track record.
EMERGING MARKET EQUITIES (THREE ETFs)
iShares Edge MSCI Emerging Markets Minimum Volatility UCITS ETF (EMV)
Emerging markets can be one of the most volatile major equity markets and so investors could be wise to turn to a minimum volatility strategy. This iShares Edge product follows the same strategy as its peers targeting global and US equities, and is also a standout product. The fee for the emerging market ETF is higher than the global or US products at 0.4 per cent, but even so this ETF has a good record of tracking its index, is a good size and has excellent liquidity.
SPDR MSCI Emerging Markets Small Cap UCITS ETF (EMSM)
Mid- and small-cap emerging market stocks are included in the core emerging market ETF option, but more risk-hungry investors may wish to define their own weighting. If so, this product from SPDR is the best one to go for. It remains relatively small in size, but emerging market small-caps are not necessarily in huge demand. Nonetheless, the product has demonstrated excellent tracking ability, is cheap to trade and relatively cheap at 0.55 per cent, compared with active funds that operate in the space.
Xtrackers Harvest CSI300 UCITS ETF (RQFI)
Chinese A shares have become a hot topic of conversation with their inclusion in MSCI indices – last year we opted to back the CS1 300 index for investors wanting access to Chinese mainland stocks (A Shares) versus those listed in Hong Kong (H Shares). The panel stands by this decision and the Xtrackers ETF has gone from strength to strength. The CSI 300 index includes companies in both the Shanghai and Shenzhen stock exchanges and includes the 300 largest and most liquid A share stocks – providing different companies to those included in mainstream emerging market indices. This ETF remains good value at 0.65 per cent as it remains a difficult area to invest in, and the Xtracker fund maintains its excellent tracking record, good liquidity and trading costs.
BONDS (THREE ETFs)
NEW: Invesco US Treasury Bond 7-10 Year UCITS ETF (TRXG)
US government debt can currently provide higher yields while still remaining a relatively safe-haven asset given the economy is much further along the interest rate raising cycle compared with other major markets such as the UK, eurozone and Japan. It’s worth remembering that iShares Global Aggregate Bond UCITS ETF GBP Hedged (AGBP) also includes exposure to US government debt, although should you want to manage your own exposure, then this ETF, which was only launched this year, is a standout product. Last year’s selection included Lyxor iBoxx $ Treasuries 1-3Y UCITS ETF (U13G), but Invesco has undercut this and the Invesco fund is already larger in size. Also, the panel thought US Treasuries with a duration between seven and 10 years offered better value. The Invesco ETF offers great value, charging only 0.06 per cent, and while the ETF is new, the panel was convinced Invesco had enough experience for this to be an excellent choice.
SPDR Bloomberg Barclays Emerging Markets Local Bond UCITS ETF (EMDL)
For investors wanting to aim for a higher yield and better potential for long-term capital gains the panel recommended keeping this emerging market debt ETF, which invests in local currency government debt. This can provide different geographic and currency exposure within a portfolio, helping diversification. The product tracks the Bloomberg Barclays Local Currency Liquid Government Bond index. It is neither the largest, nor the cheapest, local currency emerging market debt ETF, but the index tracked is superior given its focus on the underlying liquidity of the bonds, making it more palatable for investors. The SPDR product is still very large, very liquid and easy to trade and has a good tracking record, with an ongoing charge of 0.55 per cent.
iShares Fallen Angels High Yield Corp Bond UCITS ETF (RISE)
The panel recommended keeping this slightly esoteric option as it remains an excellent product, providing something different for investors and a way to boost the yield of a portfolio. Fallen angels are bonds that have been downgraded from investment-grade and tend to be oversold by institutional managers who no longer want to hold them. This ETF is designed to capture high-yield bonds with higher credit quality than the wider market and at better valuations. The idea behind this strategy is that by grouping together the fallen angels, investors end up with a diversified portfolio of developed market high-yield bonds that have better fundamentals than other high-yield bonds in the market. RISE has an ongoing charge of 0.5 per cent and has amassed a good level of assets and liquidity and trading costs are reasonable. This is an idea you have to buy into, but iShares offers a good product should you do so.
To view the rest of the Top 50 ETFs 2019, click below:
