Top 50 ETFs 2022: Core ETFs

CORE ETFS

UK EQUITIES (3 ETFS)

After some big ups and downs in recent years, domestic shares have propped up portfolios – to an extent – in 2022, in what has clearly been a difficult time for equities. The FTSE All-Share is one of the only markets in the black for the 12 months to late June 2022, and its losses are pretty modest over the six months to the same point. But the underlying performance has been pretty mixed: the FTSE 100, exposed as it is to the likes of energy stocks, has led the pack, while the more growth-oriented FTSE 250 has sustained heavy losses. Torn as investors might be over the future prospects of the market and its various constituents, UK equity exposure remains of crucial importance to the domestic investor.

iShares Core FTSE 100 UCITS ETF (ISF)

Like many of the core equity funds in the list, this continues to tick all the right boxes for our judges. This iShares ETF tracks the well-known, high-yielding and fairly cyclical FTSE 100 index, and does so at a rock-bottom price of 0.07 per cent. With more than £10bn in assets in late June, the fund’s gargantuan size makes it highly liquid, keeping trading spreads and the associated costs down.

The FTSE 100 has been enjoying a rebound in dividends, and that’s reflected in this fund’s 12-month trailing yield of 3.8 per cent as of 24 June, up from 3.3 per cent when we last compiled the list (the index's total return is flat over the same period). ISF is the distribution share class of this fund, meaning income-minded investors would receive any payouts directly rather than seeing them reinvested.

But as we allude to above, investors may ask whether the UK’s blue-chip index is overexposed to a potential pullback for the likes of commodities. Alternatives are available for those seeking a different bet or a broader form of UK exposure.

Lyxor Core UK Equity All Cap UCITS ETF (LCUK)

Investors should generally not expect to pay more than 0.1 per cent for a large fund that tracks an established index, and that’s reflected in the extremely low fee available on ISF. This Lyxor product goes even further, charging just 0.04 per cent for a broader level of exposure to the UK. It has around 330 holdings and the Morningstar UK index it tracks is designed “to represent the performance of the large, mid and small-cap segment of the UK’s equity market”.

While tracking a lesser-known index, the Lyxor fund is very competitive on price, offers a broader exposure than ISF and seems to be shaking off some old concerns. Having once looked relatively small, it has continued to grow in size in the past year. The fund recently commanded £308mn in assets, up from £237mn in June 2021.

LCUK recently came with an attractive 3.1 per cent yield, and like ISF this fund distributes its income. But that relatively high yield may hint at a structural problem with the portfolio: last year, one of our judges warned that it had less exposure to the mid-cap space than some might assume, a fact that puts into question its ability to capture any potential recovery in the FTSE 250's fortunes. The fund’s top 10 holdings, which made up 44.4 per cent of assets on 23 June, were all large-cap stalwarts, with big positions in AstraZeneca (AZN) and Shell (SHEL). Readers may therefore still prefer the breadth of an All-Share tracker, or seek to match up the likes of ISF with small and mid-cap funds.

Amundi MSCI UK IMI SRI PAB UCITS ETF (FT1K)

Environmental, social and governance (ESG) considerations have been a big driver of changes in the list over the past two years: we introduced ESG options to the Core equity lists in 2020, and swapped these out for portfolios with stricter criteria a year later. This time around, we have continued to favour funds that track the MSCI SRI range of indices, which select the best 25 per cent of a market by ESG criteria and are viewed as more stringent than many rivals.

Looking past its mouthful of a name, the Amundi MSCI UK IMI SRI PAB UCITS ETF (FT1K) continues to offer an ESG slant on the UK. It focuses on the best companies in the MSCI UK IMI index as judged by ESG scores, then excludes companies involved with nuclear power and weapons, tobacco, alcohol, gambling, oil and gas, thermal coal and adult entertainment, among other things.

Having said that, the fund comes with definite drawbacks. It can be reasonably concentrated for an all-cap market tracker, with 122 holdings at the end of May. What’s more, the MSCI SRI indices end up including the most ESG-friendly names from sectors that would likely not be viewed as such, leading to the presence of some potentially unwelcome companies in the portfolio. Rio Tinto (RIO), for one, was the Amundi fund’s third-biggest position at the end of May. Some readers may prefer their own stock picks or active funds if they are set on following ESG principles.

For those who are happy with the passive approach, it’s worth noting that a few ETFs applying the MSCI SRI criteria to the UK market have cropped up in recent years, offering some choices and trade-offs. One of this year’s panellists, Nutmeg’s Daniel Al-Hariri, preferred the much larger UBS MSCI UK IMI SRI UCITS ETF (UKSR), arguing that it offered better liquidity and tighter spreads. However, the Amundi fund comes with a lower headline fee, and Amundi’s strong ESG credentials have previously been another factor working in its favour for some on our panel.

Dropped

SPDR FTSE UK ALL SHARE (FTAL)

There are no major problems with this fund: it gives broad, well-diversified exposure to the UK market, via an index especially well-known to investors. The fund had 583 holdings in late June and combines the FTSE 100, FTSE 250 and FTSE Small Cap indices. Investors may well gravitate to it as a result of its familiarity and breadth. It might also do a better job of capturing movements in the FTSE 250 than LCUK.

Two main criticisms can be levelled at the SPDR fund, though. Firstly, as with LCUK, our experts noted that investors may wish to control their level of exposure to different market cap segments by using more than one fund – for example combining a FTSE 100 and a FTSE 250 tracker. Secondly, this option looks fairly expensive for a core equity fund, given its 0.2 per cent fee. Judges attributed this charging structure to a scarcity of rival FTSE UK All Share ETFs.

A third and final reason this ETF exits the list is because it has a high level of overlap with the Lyxor fund, and the performance of each has not been hugely dissimilar. Removing it simplifies our UK core category, while also allowing us to introduce another option elsewhere.

US EQUITIES (3 ETFS)

Investors have spent many a year wondering if a long winning streak for US equities, in particular the big tech stocks, was due a reversal. Such concerns have come to pass, in particular for technology shares. The S&P 500 has lost around 11 per cent in sterling terms in the six months to late June, even if it still clings to a small positive return on a one-year view.

Recent troubles aside, the US is still home to the world’s leading equity market, and one that has traditionally been difficult for stockpickers to outmanoeuvre. Our three core ETFs offer some fairly different forms of exposure.

iShares Core S&P 500 UCITS ETF (CSP1)

Like the FTSE 100 tracker mentioned above, this is a flagship iShares product that brooks no controversy among our panel. It tracks the main US equity market and does so in a cheap and liquid manner, with a 0.07 per cent fee and some £55bn in assets.

The usual caveats about the US market nonetheless apply: the fund has substantial exposure to the tech space, with Apple (US:AAPL), Microsoft (US:MSFT), Amazon (US:AMZN) and Alphabet (US:GOOG) making up just under a fifth of the fund’s assets on 24 June. Such names can also feature prominently in global and thematic funds, which runs the risk of doubling up on allocations. But CSP1 is nevertheless a great way to access the US market.

Xtrackers S&P 500 UCITS ETF GBP Hedged (XDPG)

Much like market timing, currency hedging can easily go wrong, depriving you of potential gains. We therefore tend to make the case for running a portfolio that is diversified by geography (and currency), a strategy that helps offset the effects of such shifts. In any case, many would also argue that currency moves tend to balance themselves out over a long enough period.

Our list nevertheless contains currency-hedged options for investors who either want to avoid such short-term volatility or wish to express a tactical view. When it comes to the US dollar versus sterling, such tactical stances will now look relatively attractive to some. Sterling has tumbled against the greenback in 2022, leaving it at a two-year low. Hedging back to sterling could protect you in a scenario where the pound regains ground and diminishes the value of dollar returns for a UK investor.

The Xtrackers fund in our list continues to stand out. It’s large, liquid, targets the S&P 500 and is only slightly more expensive than CSP1, with a 0.09 per cent fee. There is a sterling hedged share class of CSP1 (under the GSPX ticker), but it comes at a slightly higher cost of 0.1 per cent.

iShares MSCI USA SRI UCITS ETF (SUUS)

For sustainable options, we continue to mainly back ETFs that track MSCI SRI indices due to their stricter ESG approach. While MSCI's indices do not entirely exclude the likes of oil and gas, they do offer a greater contrast with conventional benchmarks than other passive ESG fund providers. When it comes to the US market, this fund ticks that box and many others: it’s very large, liquid and not overly expensive given a fee of 0.2 per cent (as with anything more complicated than a 'vanilla' tracker, ESG passives will be more expensive than the likes of a conventional US equity ETF).

It’s important to check how ESG versions of an index can differ from the parent, and in the US that often relates to big tech. The MSCI USA index and the S&P 500 are both heavily exposed to the so-called Faang stocks, but not one of these names features in this MSCI USA SRI ETF. The fund had a 15.4 per cent weighting to the information technology sector on 24 June, well below the 27.6 per cent allocation in an MSCI USA ETF run by iShares. Having said that, Microsoft was still the biggest position in SUUS, making up nearly 5 per cent of the portfolio.

SUUS also has a decent weighting to healthcare, which makes up 18.6 per cent of the portfolio. It’s worth regularly checking its biggest positions, which recently included Tesla (US:TSLA). European ETFs tend to disclose their full holdings online, making such due diligence relatively straightforward.

GLOBAL EQUITIES (3 ETFS)

Whether you're a beginner or an old hand, a global ETF can serve as the core of a portfolio for many investors. Even so, it’s useful to remember that many funds, both active and passive, are less 'global' than we might assume. The MSCI World index, which is tracked by many passive funds and widely used as a benchmark by global stockpickers, is limited to developed markets. It has also been dominated by the US in recent years, with the region making up nearly 70 per cent of the index at the end of May. That means that investors can easily double up on some of the same stocks and exposures if they mix global, US or thematic funds. Readers looking for a wider exposure may wish to turn to funds tracking broader indices such as the MSCI All Countries World index, or use a range of regional funds.

HSBC MSCI World UCITS ETF (HMWO)

A comment that commonly arises in relation to our core selection is that an ETF “does what it says on the tin”. This time around, it came up in discussion of HMWO, which has a good level of scale and tracks the MSCI World index for a competitive fee of 0.15 per cent.

The fund is diversified in some senses but concentrated in others. It had 1,419 different holdings at the end of May and a mix of different country and sector exposures. But this could be misleading: the US represented some 68 per cent of the portfolio at that point in time, with the big tech stocks appearing prominently among its biggest positions. As noted, you may wish to broaden your exposures via other funds, while also being mindful of the risks of duplicating allocations to the US and the tech sector.

iShares Core MSCI World UCITS ETF GBP Hedged (IWDG)

We mentioned earlier that UK investors could be tempted to hedge their US dollar exposure back to sterling for the time being, and that train of thought certainly applies to an MSCI World tracker. This iShares fund offers a way to do that with decent liquidity.

One possible gripe relates to the price. With a 0.3 per cent fee, this fund charges you twice as much as the unhedged HSBC product, and it’s worth adding that the hedged US equity product in our list charges a mere 0.09 per cent. Given the MSCI World’s heavy US exposure, investors may wish to go for the latter option and use regional equity positions to diversify their portfolios.

iShares MSCI World SRI UCITS ETF (SUWG)

With billions in assets and a fee of 0.2 per cent, this fund looks both very liquid and not unduly expensive compared with the conventional MSCI World tracker in our list. But once again its composition is worth scrutinising. In this instance, while the fund maintains a substantial weighting to the US, that is at a level slightly lower than its non-ESG peers, and not a single Faang stock features in the portfolio.

JAPAN EQUITIES (3 ETFS)

Having severely lagged its peers in 2021, the Japanese market has at least had a better few months than most mainstream regional indices. It has also tended to look cheap relative to higher-profile regions such as the US, and can stand out for diversification purposes even if it does little to quicken the pulse. We have once again listed a conventional Japan ETF, a hedged option and a fund with an ESG focus.

iShares Core MSCI Japan IMI UCITS ETF (SJPA)

Our panellists sometimes disagree about the best index to back for exposure to Japan, but this particular ETF encountered no real controversy. Our specialists remain happy with a fund invested in more than 1,000 different stocks as of late June, for a price of 0.15 per cent. The fund’s biggest sector allocations at the time were to industrials (22.1 per cent of assets) and consumer discretionary stocks (18.4 per cent), while its biggest positions include familiar names such as Toyota (JP:7203) and Sony (JP:6758).

Lyxor Core MSCI Japan UCITS ETF GBP Hedged (LCJG)

Sterling has done fairly well versus the Japanese yen in the past two years, eroding the UK investor’s end returns. Those worried about a continuation of the same trend might consider this Lyxor fund, which has a good level of assets and charges 0.2 per cent – not a huge deal more than SJPA.

One note of caution: this fund tracks a narrower index than the iShares ETF discussed above, potentially limiting its diversification. It had 238 holdings on 23 June, or roughly a quarter of the number in the iShares option.

iShares MSCI Japan SRI UCITS ETF (SUJA)

Another MSCI SRI index tracker takes its place in the list as the option for ESG investors. As with the other MSCI offerings, its ESG screen produces a more concentrated portfolio, with 52 holdings in the fund on 24 June versus more than 200 in its parent index. Prominent Japanese stocks such as Toyota are absent from this portfolio, while its biggest sector allocations are to industrials and financials. In keeping with a trend witnessed globally, this fund has fared worse than its parent index in the sell-off of recent months. That likely relates to the fact that ESG portfolios tend to have a bigger bias to the growth investment style that has proved vulnerable as markets have turned.

EUROPE EQUITIES (3 ETFS)

European shares have been hit hard in the past year, with the Russian invasion of Ukraine and a surge in energy costs certainly not helping. But as with Japan, an allocation to European companies can provide diversification if nothing else. It’s also worth noting that Europe has tended to fare well when cyclical assets have outperformed, although this year has been an exception.

Vanguard FTSE Developed Europe ex UK UCITS ETF (VERX)

One of just three Vanguard ETFs on our list, this large fund (with roughly €1.6bn in assets) delivers exposure to European equities for a fairly competitive 0.1 per cent fee. As with Japan, our panellists sometimes tend to disagree on the best index as a source of European exposure, but this particular fund remains relatively uncontroversial. Nutmeg’s Al-Hariri notes that it gives “full European exposure outside the UK”. This includes a very small allocation to Poland, a country lacking from the likes of the MSCI Europe ex-UK index.

As to where the fund is more substantially invested: at the end of May 22 per cent of the portfolio was in France, with a 20.6 per cent allocation to Switzerland and 17.1 per cent in Germany. The fund is well-diversified across 489 stocks, with its top 10 holdings making up a little over a fifth of the portfolio.

iShares Core MSCI EMU UCITS ETF GBP Hedged (CEUG)

This hedged share class offers a way to remove currency volatility from a Europe allocation for a relatively low fee of 0.12 per cent, but there is a concern to keep in mind. As mentioned, our judges have previously disagreed over the best European indices, and in the past some have worried about the fact that this fund’s underlying index excludes Switzerland. That means prominent VERX holdings such as Nestle (CH:NESN) are absent, and also has a knock-on effect for the iShares fund’s other country allocations. France made up a fairly chunky 36.1 per cent of the portfolio in late June, with Germany accounting for a quarter of assets.

With 231 holdings and a spread of exposures, we still believe this is a relatively broad fund. But such concerns are certainly worth noting.

UBS MSCI EMU Socially Responsible UCITS ETF (UB39)

Lynn Hutchinson, Charles Stanley’s head of passives and one of our panellists, asked why this fund sits in the list rather than one that tracks an SRI version of the MSCI Europe index. Such funds are available, including the iShares MSCI Europe SRI UCITS ETF (IESG), which modestly undercuts the UBS fund on charges with a fee of 0.2 per cent.

Our answer relates to portfolio construction: the MSCI Europe SRI index includes the UK and could slightly muddle an investor’s asset allocation as a result. The iShares fund had 16.6 per cent of its assets in the UK as of 27 June.

The UBS fund, by contrast, focuses more closely on the continent. But like CEUG it should come with a few disclaimers: its initial focus on the MSCI EMU index means an exclusion of Swiss shares and heavier exposure to France and Germany, while the ESG process makes it more concentrated with around 75 holdings. On the plus side, the fund has grown less concentrated – this time last year it had just 54 holdings.

ASIA PACIFIC EX-JAPAN EQUITIES (1 ETF)

Exciting and important as the region is, investing in an Asia fund can often mean an outsized allocation to China. The country made up 35 per cent of the widely followed MSCI AC Asia ex Japan index at the end of May, followed by Taiwan (18.2 per cent), India (14.6 per cent) and South Korea (14.5 per cent). These four countries are also the biggest constituents of the MSCI Emerging Markets index, where China had a 30.8 per cent weighting.

China concerns aside, this makes it easy to double up if you have allocations to both Asia and emerging markets. For the sake of differentiation we have therefore stuck with a slightly unusual option for the Asia category.

iShares Core MSCI Pacific ex-Japan UCITS ETF (CPJ1)

Introduced in 2019’s reshuffle, this fund keeps its place in the list as a play on the Asia Pacific region with limited emerging market overlap. It had a substantial weighting to Australia as of the end of June, amounting to 61 per cent of the portfolio, although as Charles Stanley’s Hutchinson notes, this has been a good place to invest in recent times. The fund’s performance was relatively flat over the six months to late June 2022, a period that has seen many mainstream equity indices plunge into the red.

Beyond its Australia weighting, the fund has around a quarter of its assets in Hong Kong, with smaller weightings to Singapore and New Zealand. It has 118 holdings, and some of its more prominent positions are admittedly large. Take, for example, an 8.1 per cent allocation to BHP Group (AU:BHP).

This is a long way from being the most exciting name on our list, but it might appeal to investors with a keen eye for diversification by equity region.

EMERGING MARKET EQUITIES (2 ETFS)

Heavy exposure to China has contributed to another turbulent period for emerging market equities, while the conflict between Russia and Ukraine has emphasised the risks of investing in certain developing economies. From a strengthening US dollar to the prospect of recession, plenty of new threats are also on the horizon. That said, the region’s appealing structural growth trends remain hard to ignore, even if some investors are tempted to be more selective rather than buying a tracker fund.

iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM)

For those who favour an emerging markets tracker, this is a fairly straightforward choice. It’s large, liquid and gives exposure to around 3,000 different stocks in various countries for a low 0.18 per cent fee. Like some other iShares trackers, this ETF also boosts its returns using securities lending, something that amounted to 0.11 per cent-worth of returns for the year to the end of March.

The fund tracks a version of the MSCI Emerging Markets index, and as mentioned earlier it has big weightings to China, Taiwan, India and South Korea. Some of the better-known emerging market stocks have quite a presence: Taiwan Semiconductor Manufacturing (TW:2330) made up 5.4 per cent of the fund on 27 June, with Tencent (HK:700) making up 3.9 per cent, Alibaba (HK:9988) 3 per cent and Samsung Electronics (KR:005930) 2.8 per cent.

Xtrackers MSCI Emerging Markets ESG UCITS ETF (XESE)

While not evident from its name, this fund again tracks an index from the stricter MSCI SRI range, and does so for a not unreasonable 0.25 per cent charge. It holds large and mid-cap companies across various emerging market countries with “high ESG characteristics and low carbon exposures” relative to peers, while excluding companies involved in tobacco-related products.

The fund has a good spread of exposures, with 325 shares in the portfolio at the end of May. It does, however, look notably concentrated in other respects, with allocations of 10.6 per cent to Tencent and 7.4 per cent to Alibaba. Investors are therefore more exposed to any further problems for the Chinese tech giants. China itself makes up 35.3 per cent of the portfolio, followed by a 13 per cent allocation to India and 11.4 per cent in Taiwan.

BONDS (4 ETFS)

In our 2021 list we wrote that fixed income had endured “a dramatic 18 months”, a phrasing that almost sounds like an understatement in today’s context. With inflation surging and interest rates rising in the US and UK, the government bonds that have traditionally gained in value when equities fall have run into plenty of trouble themselves. The US 10-year Treasury has seen yields, which move inversely to prices, hit their highest level since late 2018, with yields on UK gilts also shooting up. 

And yet it isn’t all bad news. If some investors have written bonds off, others believe they look more attractive after the pick-up in yields. Government bonds may also come into their own if we do move into a recession.

Our core bond list continues to offer funds that act as a broad source of fixed income exposure, and one option that can work well at times of rising inflation expectations. Our satellite bond category, meanwhile, contains some names that should hold up better in the face of inflation and rising rates.

Lyxor Core UK Government Bond UCITS ETF (GILS)

Talk of a rise in yields may fail to adequately express just how painful recent times have been for government bond investors, but a chart of this fund’s performance will certainly tell the full story. The Lyxor ETF is sitting on a 15 per cent loss for the six months to 28 June – little solace for investors who have also seen their equity holdings take a battering.

We noted that some may now spy a contrarian buying opportunity in government bonds and this fund remains a good, broad source of exposure to the UK portion of that market. Its duration, or level of sensitivity to changes in interest rates, recently stood at a relatively high 10.56 years, but that could serve it well if rate rises do ease off omewhat over time. The fund does have exposure to bonds with a variety of different levels of duration, and is large and liquid. Like many mainstream bond funds, it’s also cheap: the current fee is just 0.05 per cent, down from 0.07 per cent when we last compiled the list. Sadly, the provider describes this as a temporary fee cut that will only last until December 2023.

iShares £ Index-Linked Gilts UCITS ETF (INXG)

We introduced this fund in 2020 amid some initial concerns that inflation might be brewing. However, we did caution that while inflation-linked bonds perform well as inflation expectations gather pace, their high levels of duration mean they have tended to struggle as interest rates rise. This fund has certainly fallen victim to tighter monetary policy, having racked up even bigger paper losses than GILS over a half-year period.

We leave the fund in the list as an option, should investors wish to turn back to inflation-linked bonds in future. It’s large, liquid and comes with an attractive 0.1 per cent fee.

iShares Core Global Aggregate Bond UCITS ETF GBP Hedged (AGBP)

We have outlined the current case for hedging US dollar exposure back into sterling, and panellist David Liddell believes it can be more important to do that with bonds than equities. While equity funds can make gains despite adverse currency movements, he argues that bond returns can “easily be wiped out" if foreign exchange movements work against them – undoing their supposed role as a portfolio stabiliser.

Given that this fund recently had a 40 per cent allocation to the US, opting for its hedged share class seems prudent. Aside from that, it continues to offer extremely broad exposure to global government bonds, with around 9,500 holdings in late June and exposures to various different parts of the world. The 0.1 per cent price tag looks attractive, especially on a hedged share class.

iShares Core £ Corporate Bond UCITS ETF (SLXX)

Viewed as another defensive form of fixed income, investment-grade corporate bonds will often move roughly in line with government debt. That has proved the case in the past year or so, with this fund racking up some big losses.

If you are after such exposure, this fund offers it fairly broadly, with 467 holdings as of late June and a variety of different sector allocations, the largest of which was to banking. While the highest in this category, the fund’s 0.2 per cent fee doesn’t seem excessive.

We have noted in the past two years that the fund has a chunky level of exposure to BBB-rated bonds, otherwise known as the lowest rung of investment-grade debt. That remains the case, with around 53 per cent of the portfolio in BBB bonds. This kind of allocation could prove painful if economic conditions deteriorate and leave issuers of such debt vulnerable to credit quality downgrades.