Investors have different investment objectives, face different tax rates, and have foreign exchange and re-investment costs that vary from provider to provider. For example, someone allocating to their SIPP may dislike dividends due to re-investment costs, while another investor may find that dividends make up a crucial component of their annual income.
In compiling this list we wanted to avoid naming numerous ‘thematic’ trading ideas which change from month to month, and also steer clear of listing leveraged and inverse ETFs which can only be held for a very short time. Subject to availability we opted for ETFs listed in GBP to reduce foreign exchange transaction costs.
Our Top 50 ETFs is split into the following categories for easier reference:
- Portfolio building blocks
- Sources of alpha
- GBP currency hedging ETFs
- Market hedging ETFs
- ETFs for income seekers
Portfolio building blocks
With incredibly low ownership costs over the long run, all investors should consider holding a selection of these as long-term portfolio holdings. These ETFs make up the core positions of an institutional asset allocator, and in the right weights they give investors almost all of the diversification they might need.
Where possible we listed a distribution and total return ETF. Some parts of the marketplace, such as the FTSE 100, are well covered by various providers and so competition in the space is intense. To differentiate between the competing offerings, we assessed similar ETFs by TER, Bid-Ask Spreads, NAV Tracking Error and market cap. Where we had the option of a synthetic or physically replicated ETF, we tended to go for the latter, though we have no fundamental issue with the former and are confident that investors are safe-guarded against all but the most improbable default scenarios.
Sources of alpha
In addition to the traditional portfolio building blocks we list a series of ETFs where investors can get exposure to small caps, short- and long-duration bonds, as well as pure currency exposure to US TIPS and local emerging market debt.
Currency hedging instruments
Sterling has suffered a significant depreciation due to Brexit and weakening economic fundamentals (experiencing both current account and budget deficits, plus a rising national debt). Should sentiment begin to improve, GBP hedged ETFs will make a useful addition to an investor’s armoury and could help avoid large foreign exchange losses in the future.
Market hedging ETFs
With equity markets and bonds at or close to new highs, these are completely out of fashion at the moment, but when bearish sentiment returns we think these short ETFs will once again be a valuable portfolio diversifier.
ETFs for income seekers
Where the market yield is not enough, or simply to add some diversification in a yield-scarce environment, we have selected some high dividend ETFs. They are not necessarily the highest yielding in the market-place, but do have a good degree of diversification throughout their holding.