Best UK ETFs to buy in Q1 2023

UK ETF investing is an incredibly popular trading strategy, especially among newer investors. ETFs allow you to buy a basket of shares based on a specific sector or investing approach without requiring the legwork to continue adjusting a portfolio.

Importantly, an ETF allows for increased exposure to a diversified range of investments. the trading liquidity of equity instead of the rigidity of a mutual fund, and the ability to manage risk by trading futures just like an individual stock.

As such a popular trading instrument, there are hundreds of potential candidates for investors to choose from. However, it’s possible that highly diversified ETFs, and those most resistant to inflation, could be the best to consider in early 2023 as the country enters the paradox of an inflationary, recessionary period.

Of course, IG offers an ETF screener to help inform your investing decisions. One key thing to note is that this list is comprised of highly popular ETFs that are not actively managed, and therefore have lower fees than average — more specialised ETFs are more

expensive, and this can have a huge impact on total returns after several years of lost compounding.

Bests UK ETFs

1. iShares Core FTSE 100 UCITS ETF

Perhaps the most popular UK ETF, this FTSE 100 index tracker offers exposure to the 100 largest UK-listed companies by market cap. The fund attempts to exactly follow the performance of the FTSE 100 constituents, as allocated by FTSE Russell.

The ETF has exceptionally low fees and offers globally diversified growth through large UK-based sector-leading companies such as AstraZeneca, Shell, and HSBC. And because the index is heavily weighted towards energy, mining, and bank stocks, it has outperformed in 2022 compared to its international peers due to their defensive qualities. Indeed, iShares markets the ETF to be used ‘at the core of a portfolio to seek long-term growth.’

Its key disadvantage is that the ‘dinosaur’ stocks of the FTSE 100 are unlikely to see explosive growth, even when monetary policy eventually loosens. However, while the index is susceptible to localised disruptions within the UK, FTSE Russell data shows that 82% of revenue generated by FTSE 100 companies comes from overseas, allowing index investors to benefit from the current weakness of sterling.

2. iShares UK Dividend UCITS ETF

Rather than invest only in FTSE 100 companies, many investors prefer an ETF which focuses on the core strength of the largest UK businesses, which is dividend returns. The iShares UK Dividend UCITS ETF does exactly that, offering diversified exposure to the top 50 UK companies within the FTSE 350 with the highest dividend yield.

Excluding only investment trusts, top income-focused holdings include Rio Tinto, Anglo America, Persimmon, Legal & General, and Imperial Brands. This represents four mining, housing, insurance, and tobacco, sectors with a solid history of dividend pay-outs (though which can vary dependent on economic cycles).

However, as this ETF is even less exposed to growth than a FTSE 100 tracker, many investor pair it with a NASDAQ 100 or S&P 500 index tracker ETF. While these commonly have slightly higher fees, they do allow for exposure to a higher level of diversification.

3. Vanguard FTSE All-World UCITS ETF

This £6.7 billion exchange traded fund is one of the most popular globally, as it aims to track the performance of the FTSE All-World index, made up of large and mid-sized companies in both developed and emerging markets.

In a sense, it offers the most diversified portfolio of stocks possible in one handy basket, providing exposure to almost 4,000 companies from across 50 countries at a low annual fee. It does have a geographical bias, with 60% of companies in the ETF US-based, 6% Japan-based, 4% UK-based, and 3% China-based.

And because of the relative size of the US tech giants, the FTSE All-World’s biggest sector is also technology, which has experienced a poor 2022. Largest holdings include Apple and Amazon, and its holdings have a median market cap of almost $100 billion.

On the other hand, the index is usually beaten by the S&P 500 alone. However, the index makes for a good partner to a FTSE 100 tracker. And it’s worth noting the benefits of diversification — investors need to protect themselves from unpredictable or even catastrophic events, the occasional US stock market bubble, and should consider the significantly higher growth potential to be found in emerging markets.

4. Invesco Physical Gold ETC

CPI Inflation is raging at 10.7% in the UK and could rise in April as energy bills increase. Indeed, inflation has been a central theme of 2022, with central banks increasing interest rates to highs not seen since the 2008 financial crisis. In an era of rising inflation, gold remains the traditional real asset inflation-hedge, preserving purchasing power and acting as a protective asset in times of severe market stress

Invesco Physical Gold ETC seeks to replicate the performance of the London Gold Market Fixing Ltd PM Fix Price/USD, with the fund backed one-to-one with gold bullion held by JP Morgan Chase in London bank vaults.

Investing in gold’s performance through 2023 could be rewarding, especially as the US Federal Reserve and other central banks start to slow rate rises as the world enters recession. For context, during the 2008 financial crisis, the S&P 500 fell by 37% while gold rose by 24%. And given gold’s correction in H2 2022, now could be an excellent entry point.

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