Best UK ETFs to buy in Q3 2023

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. Naturally, there are many actively managed ETFs which are more expensive, but none make this short rundown for Q3.

With inflation raging in the double-digits, 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. For the uninitiated, we offer an ETF screener that can help to inform your investing decisions.

Best UK ETFs

1. iShares Core FTSE 100 UCITS ETF

This FTSE 100 index tracker is one of the most popular ETFs in the country, as it offers exposure to the 100 largest UK companies by market capitalisation. It attempts to exactly follow the performance of the FTSE 100 constituents as defined by FTSE Russell.

The iShares Core FTSE 100 UCITS ETF boasts very low fees and diversified growth as the largest FTSE 100 companies such as Shell, AstraZeneca, HSBC, and Unilever operate across the world. Indeed, FTSE Russell estimates that 82% of FTSE 100 company income is derived from overseas.

Moreover, the FTSE 100’s weighting is towards energy, miners, and bank stocks — which have benefitted from the commodity supercycle in addition to the increasingly tight monetary policy. iShares therefore markets the ETF to be used ‘at the core of a portfolio to seek long-term growth.’

Its key disadvantage is that defensive FTSE 100 companies are unlikely to see strong capital growth. This means that many investors choose to pair it with an ETF which follows the S&P 500, or one of its variants, for a good balance of risk allocation.

2. iShares S&P 500 Information Technology Sector ETF

For those looking for a chance of strong capital growth but with a little extra risk, the iShares S&P 500 Information Technology Sector ETF could represent a decent choice.

The 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, while also highlighting its single country exposure.

US information technology stocks have suffered under rising rates, but falling valuations mean that now could be an opportunity for long-term investors. Further, this ETF might represent a decent choice to pair with the FTSE 100-tracking ETF; with the former outperforming during boom times and the latter acting as a hedge against inflationary periods.

3. 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 currently trades for a near-record $1,990/oz, 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 during the 2008 financial crisis, the S&P 500 fell by 37% while gold rose by 24%. And this particular financial crunch currently looks far from over — with central banks buying a record 1,136 tons of the precious metal in 2022 and continuing to buy huge amounts this year.

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 monetary policy has tightened, and with some expecting that the US Federal Reserve will soon pause or pivot, gold could go on to new highs.

It is worth noting that equities have historically outperformed gold over the long term, as investors tend to reallocate their portfolios towards stocks when growth returns.

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).

British American Tobacco, Rio Tinto, Vodafone, and HSBC are its top four holdings, alongside other miners, banks, and several defensive stocks with a reliable history of dividend pay-outs. Of course, there are risks — dividends are not guaranteed and cyclical companies like Rio Tinto or Persimmon 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.

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