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Top 50 ETFs: UK equities

Our pick of the best ETFs for exosure to the UK market
May 24, 2018

UK equities will always be a core part of a private investor’s portfolio, so this selection covers the range of large-cap, mid-cap, all-cap and income. All the ETFs included are large, liquid and the best value for money on offer.

Dropped from 2017 selection

SPDR S&P UK Dividend Aristocrats UCITS ETF (UKDV)

This ETF has not performed as well as rival income products and has lost investors capital over the past 12 months. There are understandable reasons for this; income-focused indices can underperform the wider market, and the UK market itself has not seen stellar returns. However, the S&P Dividend Aristocrat methodology – a method we still have faith in as seen in our other equity income ETF selections – just has not worked well recently in the UK. It tracks the 30 highest dividend-yielding companies that have a policy of increasing dividends and have done so consecutively for at least 10 years. However, this gives it a very narrow focus, which sometimes works, but not right now. Instead, we have decided to choose a broader income index.

 

New list

iShares Core FTSE 100 UCITS ETF (ISF)

The flagship UK large-cap equity product from iShares remains a firm favourite among our panel and investors alike. It has grown in popularity and therefore size, and is one of the most liquid and traded ETFs around – with 5.5m shares being traded every day on average. Its performance in relation to the benchmark is better than rival products from Vanguard and HSBC, and at 0.07 per cent it is still a price leader for FTSE 100 tracking, with only HSBC matching it. An effective and simple core ETF that’s value for money in terms of both charges and spread.

 

SPDR FTSE UK All Share (FTAL)

For investors looking for a broader UK exposure, we think this ETF from SPDR remains the best way to do so. The ETF has an excellent record of tracking the All-Share. At 0.2 per cent it is matched on price by its closest rival from XTrackers, but remains substantially bigger and its spreads are narrow. It also continues to outperform all peer products. However, in March Lyxor launched a cheaper broad UK equity ETF tracking a Morningstar UK index charging only 0.04 per cent. The Lyxor ETF remains too new and too small to warrant inclusion at this point, but is certainly one to watch.

 

Vanguard FTSE 250 UCITS ETF (VMID)

If a mid-cap focus is more your fancy then this Vanguard ETF is a strong choice. The panel voted unanimously to keep it in this year’s Top 50 list. FTSE 250 tracking is a favourite among investors, with the index substantially outperforming the FTSE 100 and FTSE All-Share over time – albeit slightly less so in the past 12 months. There are a limited number of products tracking the index, but Vanguard’s ETF is the price leader, charging only 0.1 per cent. It is also the second-largest, having gathered £690m in assets – some £200m more than this point last year – meaning the shares should be easy to buy and sell and the spreads narrow. iShares does offer a larger, more liquid ETF, but it is vastly more expensive with a 0.4 per cent ongoing charge.

 

NEW: iShares UK Dividend ETF (IUKD)

UK equity income will always be important for ETF buyers, so this choice required careful consideration. This iShares product has been in contention in previous years, but we have tended to opt for the now-dropped SPDR ETF. We think a broader set of companies paying income is more suitable in the current environment. The iShares ETF tracks the FTSE UK Dividend Plus index, which includes 50 FTSE 350 stocks and is weighted according to their one-year forecast dividend yield, making it more diversified than the SPDR ETF. It also yields more, at 4.88 per cent, is larger and more liquid, and has performed better recently and historically. It is more expensive at 0.4 per cent compared with SPDR’s 0.3 per cent, but we believe this is a price worth paying.

 

To view the IC Top 50 ETFs 2018 by category, please click on the links below:

UK equities (four ETFs)

US equities (six ETFs)

European equities (six ETFs)

Japanese equities (four ETFs)

Global equities (six ETFs)

Asian equities (three ETFs)

Emerging market equities (four ETFs)

Ethical equities (three ETFs)

Government bonds (six ETFs)

NEW: Sterling corporate bonds (two ETFs)

NEW: Global bonds (three ETFs)

Commodities and precious metals (three ETFs)

 

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