Top 50 ETFs 2018

With more than 2500 exchange traded funds (ETFs) on sale, where do you start looking? Allow IG’s Top 50 ETFs to steer you in the right direction, with its combination of portfolio building blocks, income ETFs, and themes.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results

Picking an ETF for your portfolio

Choosing which exchange traded fund (ETF) to invest in gets more difficult every year. Market growth has seen a proliferation of ETF strategies (some good, others not so good) muddying the waters for many investors. IG’s ETF Screener is a great help, but it still takes a lot of research, even for professional investors, to decide which ETFs to trade in their portfolios.

This 2018 edition of IG’s Top 50 ETFs aims to clear up some of the confusion, by selecting ETFs under the following categories:

  1. Core portfolio building blocks
  2. Secondary indices
  3. GBP currency hedged
  4. Equity ETFs for income seekers
  5. Themes
  6. Smart beta

As we have previously written, trying to own the ‘best ETF’ in its space can be largely academic, as market pricing often has a much larger impact on your total return than picking the ETF with the lowest management fees or tightest index replication.

Therefore you should not see this as being a ‘best of the best’ list, but rather one that is a dependable source of ideas for making investments. In many of the categories there are similar ETFs that could perform just as well for your portfolio. Nonetheless, all the ETFs listed here are undoubtedly amongst the leaders in their space.

Click here for IG's complete list of top 50 ETFs 2018 (pdf)

The following guidelines explain how the list was compiled:

1. Every ETF can be bought with GBP

Investing in GBP  share classes cuts down on foreign exchange fees, which can be many times higher than the dealing costs, and can eat into your returns.

If you do wish to trade non-GBP  assets, IG charges just 0.3% for FX fees, compared with 1%, or even 1.5%, for well-known competitors. This can save up to £120 on a £5000 round trip with an investment that is bought and subsequently sold.

2. ETFs that distribute income given precedence over total return ETFs

For investments held outside  ISAs and  self-invested personal pensions (SIPPs), this makes it easier to work out income tax and secondly, it gives readers an indication of what the  asset class yields.

Nevertheless, owners of fixed income ETFs should refer to the ETF factsheet to  establish the yield to maturity, as this can be significantly different from the  dividend yield. 

3. TER%

This is the annual cost to the investor of owning the ETF. Products tracking the most widely held indices, such as  FTSE 100,  S&P 500 and UK  gilts are subject to intense pricing competition, and are cheapest to own.

Low management fees are a boon to investors, but there are other factors to take into account.

​4. Average bid—ask spread

Because ETFs are traded on the  stock exchange, they have a  bid-ask spread like normal shares. The bid-ask listed is the average spread over two years, as reported by Bloomberg. The wider the bid-ask spread, the more frictional cost there is to trade in and out on a regular basis. This is determined by the asset class, as well as the number of firms making a market in the  security.

Bid-ask  spreads are not a disadvantage of ETFs: there is no stamp duty (UK rate is 0.5%) payable on ETFs, and they also avoid the creation and anti-dilution levies that occur when investing in funds.

While the 50 ETFs here cover the majority of asset classes that investors are likely to want to trade, it pays to remember that ETFs cannot provide exposure to all the asset classes. For example, UK  small cap and specialist income vehicles are better bought via individual shares or in investment trusts, which you can do at low cost on  IG’s share dealing platform.

You may also want to consider owning a managed portfolio of ETFs for your long-term investments.  IG Smart Portfolios offer robust and low-cost portfolios to suit most  risk tolerances, and in addition there is no share dealing custody charge for clients with portfolios worth more than £15,000.  

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.