Are these the best UK ETFs to watch in Q1 2024?

Investing in Exchange Traded Funds (ETFs) is an incredibly popular trading strategy, especially among newer investors. ETFs allow you to buy into a ‘basket of securities’ based on a specific sector or investing approach, without having to buy the assets individually.

Investing in 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.

Of course, ETFs can contain all sorts of investments, from stocks to commodities to bonds. Other than the convenience, ETFs usually offer low expense ratios and lower broker commissions than buying the constituent assets individually.

And with inflation still high, a potential recession inbound, and uncertainty soaring, the diversification of ETFs appears more attractive than ever.

However, it’s worth noting that an ETF will only ever perform as well as its underlying constituents. We do offer an ETF screener that can help to inform your investing decisions. But remember, past performance is not an indicator of future returns.

Best UK ETFs to watch

1. Vanguard FTSE All-World UCITS ETF

This exchange traded fund is one of the most popular in the world, 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.

This index offers possibly the most diversified portfolio of stocks possible, providing exposure to almost 4,000 companies from across 50 countries at a low annual fee.

However, it does have a geographical bias, with 60% of companies in the ETF based in the US. And because of the relative size of the US tech giants, the FTSE All-World’s biggest sector is usually technology — which can be volatile given the sensitivity of tech stocks to monetary policy. Further, over the longer term the index is usually beaten by the S&P 500.

But it’s worth noting the benefits of diversification — investors may wish to protect themselves from unpredictable global events, such as the occasional US stock market bubble, and also benefit from emerging markets.

2. iShares S&P 500 Information Technology Sector ETF

This ETF seeks to track the performance of an index composed of U.S. Information Technology Sector companies as defined by the Global Industry Classification Standard. It boasts diversified exposure to titanic US tech stocks including top holdings Apple, Microsoft, and NVIDIA — but with the caveat that it only invests in the US.

US information technology stocks have recovered significantly across 2023 — rates across the pond may have peaked amid hopes that generative AI could drive further capital growth. Of course, as noted above, tech shares — even the blue chips — are more volatile than other sectors.

3. WisdomTree Brent Crude Oil ETF

The WisdomTree Brent Crude Oil ETF is designed to closely track the Bloomberg Brent Crude subindex, collateralised by swaps held with the Bank of New York Mellon. Buying shares in this popular ETF gives investors exposure to Brent Crude, globally recognised as the most popular oil benchmark, which is based on oil drilled in the North Sea.

Oil prices remain elevated as a result of post-pandemic demand, alongside wars in Ukraine and the Middle East. In particular, some investors fear that if Iran enters into a regional conflict with Israel, the ‘world’s oil chokepoint, the Strait of Hormuz, could be closed.

4. iShares UK Dividend UCITS ETF

The iShares UK Dividend UCITS ETF is a selective ETF which focuses on the most appealing strength of the some of the best FTSE 100 companies — reliable dividend returns.

Instead of investing in all 100 companies in the UK’s premier index, it instead offers diversified exposure to the top 50 UK companies within the FTSE 350 with the highest dividend yield (excluding investment trusts). Of course, there are risks — dividends are not guaranteed and cyclical companies like Rio Tinto or Barratt can see dividend yield fall fast in poor years.

Many investors look to pair this fund with a NASDAQ 100 index tracker ETF, allowing for some exposure to growth for a balanced portfolio.

5. Invesco Physical Gold ETC

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.

Gold continues to flirt with near-record $2,000/oz levels, as the traditional real asset inflation-hedge, which preserves purchasing power and acts as a protective asset in times of severe market stress, once again performs admirably in this inflationary environment.

It’s worth noting that central banks bought a record 1,136 tons of the precious metal in 2022 and continue to buy huge amounts this year.

And of course, gold’s price trades in an unofficial pair with the US Dollar; usually, rate rises tend to see gold fall as defensive investors seek the safe haven of the world’s reserve currency. However, gold has continued to rise even as rates increase, highlighting its attractiveness in the current environment.