What are the top ETFs to watch?
Explore ten different areas of interest, how they were affected by the coronavirus crash and why you should trade with ETFs.
Why invest in ETFs?
Exchange traded funds, better known as ETFs, are baskets of an asset class that you can invest in to gain broad exposure from a single position. You can find ETFs on a range of assets, including stocks, commodities and currencies.
You can choose from thousands of different ETFs with us – meaning you’ll always find the perfect fund to suit you and your trading aims.
Share dealing with us enables you to invest in US ETFs from just £0 commission and £3 on UK ETFs.1 You could even open an IG Smart Portfolio, which provides you with a fully managed, globally diversified portfolio – built exclusively with BlackRock’s market-leading iShares ETFs.
There are a range of benefits of investing in ETFs, such as:
- Improved liquidity. Major ETFs, particularly those from the biggest providers like iShares, Vanguard and Invesco, are known for offering good liquidity, which also means lower spreads
- Lower risk. As you invest in a group of assets rather than placing all your bets behind one or a few instruments. For example, an investor that wants to gain exposure to the FTSE 100 can opt for the iShares Core FTSE 100 UCITS ETF rather than handpicking a few selected stocks.
- Tax and cost efficiency. If you invest in ETFs using an IG share dealing account, you’d pay as little as £5 in commission per trade. And if you invested using an IG ISA or SIPP you wouldn’t be required to pay capital gains or income tax.
All-in-all, ETFs give investors a simple and low-cost way to diversify their portfolio any way they want. Some target growth while others pay dividends, meaning they are suitable for both growth and income investors.
Alternatively, you could speculate on the price of ETFs with CFDs and spread bets. You’d have the same diversified exposure, but with the possibility of making your capital go a lot further. While investing requires you to put down the full amount needed to open a position upfront, CFDs and spread bets are leveraged, meaning you can open a position for a fraction of the cost.
But remember, although leverage has the potential to magnify profits, it does also magnify risk.
Top ETFs for investors
Below is a list of ten areas that you should consider in 2020 and which ETFs can give you the exposure you want.
ETFs can be a great way to add some consistent dividend payments to your portfolio. Most ETFs, particularly those that invest in equities, redistribute any dividends that are paid by its investments on a pro-rata basis each quarter or twice a year (although some reinvest these sums). If an ETF sources income from several dividend-paying stocks, then distributions to shareholders will be more reliable.
iShares UK Dividend UCITS ETF
This ETF offers exposure to the higher-yielding dividend stocks that are included in the FTSE 350, meaning it is solely made up of UK stocks. It has 50 holdings, the largest of which are Persimmon, Hammerson, IAG, Legal & General and Standard Life Aberdeen. Between January 2019 and January 2020, the iShares UK Dividend UCITS ETF had generated a return of 23.5%. While it was significantly impacted by the coronavirus, the ETF did recover as lockdown measures eased.
Dynamic iShares Active Global Dividend ETF
This BlackRock ETF aims to provide long-term capital growth by investing in a portfolio of equities that pay (or are expected to pay) dividends. It includes companies from around the world but over 70% of its holdings are based in the US. Its top five holdings include Keysight Technologies, Lonza Group, Microsoft, Sartorius Stedim Biotech and Mastercard.
This ETF generated a return of over 39% between January 2019 and January 2020. It did also fall amid the March 2020 market sell-off, but was trading at pre-crash levels within two months.
Principal Active Global Dividend Income ETF
This ETF invests in dividend payers from around the world, with a roughly 50:40 split between US and non-US stocks, and 10% cash investments. Its top five holdings are Taiwan Semiconductor, Microsoft, Apple, JPMorgan Chase and Roche.
This ETF generated a return of 26.4% between January 2019 and January 2020. During the 2020 global economic slowdown, many US and emerging market stocks were impacted so the ETF declined significantly but did rebound in the following months.
Oil markets were among the first to be impacted by coronavirus, as the global travel ban and reduced activity in transportation and building industries caused the demand for oil to fall dramatically.
When OPEC+ announced plans to restrict the production of oil to avoid oversupply, Russia was initially resistant. The resulting oil price war between Russia and Saudi Arabia spilled over and caused thousands of job losses in the US shale industry and led to US oil prices to falling by 34% in the first few weeks of March. Eventually, Saudi Arabia and Russia reached an agreement in which they would cut production by 23% to about 8.5 million barrels per day.
Despite this, global storage capacity still reached capacity. Faced with the prospect of taking physical delivery of oil, large numbers of speculators decided to dump their futures contracts. This caused the price of oil to fall into negative territory for the first time in history.
Speculating on ETFs can be a great way to get exposure to oil price volatility without having to worry about physical settlement.
Some popular oil ETFs include:
- WisdomTree Brent Crude Oil ETC: this tracks the Bloomberg Brent Crude Subindex, which is designed to reflect in the price of Brent Crude futures contracts.
- WisdomTree WTI Crude Oil ETC: this tracks the price of WTI instead of Brent. WTI usually trades at a discount to Brent, but the size of this discount can vary.
- United States Brent Oil Fund: this fund aims to reflect the daily changes in the price of Brent, meaning it focuses on the spot price of oil rather than futures contracts like the two options listed above.
- iShares MSCI Global Energy Producers ETF: rather than directly tracking the performance of oil prices, this ETF is a basket of securities comprised of oil and gas producers and explorers from around the world. Its top five holdings are Exxon Mobil, Chevron, Total, BP and Shell.
Gold is regarded as a safe haven asset that attracts investment when uncertainty hits the market. The more volatile the market, the more demand there is for gold. The current uncertainty that plagues the market has caused some interesting price movements for gold markets.
Initially, when the pandemic started to play out across markets in March, the price of gold actually fell. However, sell offs at the start of crisis aren’t uncommon – the same thing happened in the 2008 financial crisis. This initial pullback happens as a result of investors attempting to find liquidity and cover losses in the stock market.
However, the precious metal soon saw demand spike again and regained its safe haven characteristics. In June 2020, the interest in gold pushed the price through the $1769 resistance line and even traded above $1776 per ounce – marking its highest level in nearly eight years.
Like oil ETFs, gold ETFs offer traders and investors a way of getting exposure to the market without dealing with the physical commodity.
Popular gold ETFs include:
- SPDR Gold Shares: this is the largest physically-backed gold ETF in the world. It provides exposure to the price of gold bullion by investing directly in physical gold.
- iShares MSCI Global Gold Miners ETF: this ETF tracks the performance of a basket of equities comprised of global gold producers including the likes of Newmont, Barrick Gold, Newcrest Mining, AngloGold Ashanti and Agnico Eagle Mines.
Defence ETFs were set to benefit from ongoing geopolitical tensions in 2020. As Western countries, like the UK and the US, intended to at least maintain their spending on defence at current levels (or increase it). However, the coronavirus pandemic did refocus budgets to shore up the economy, which has left doubt over how much support defence stocks will see. Aerospace has not fared so well amid coronavirus – although the sector focuses on commercial airplanes, it is often bundled together with defence stocks. Players like Boeing suffered severely as the entire travel sector ground to a halt as restrictions of movement were put in place.
It will take a steady stream of defence spending for the industry to regain lost ground post-coronavirus – alongside other factors such as geopolitical developments, economics and technological advancements.
ETFs enable you to get exposure to the entire industry from just a single position. For example, Invesco Aerospace and Defence ETF tracks the SPADE Defense Index, which is comprised of companies involved in US defence, homeland security and aerospace operations. Its top five holdings are Lockheed Martin, Honeywell International, United Technologies, Boeing and Northrop Grumman.
Technology stocks are some of the most in demand in the world. In fact, over half of the top ten most valuable publicly-listed companies in the world are classed as tech stocks, with Apple, Microsoft, Amazon, Alphabet, Facebook and Alibaba all making the cut.
Although many tech stocks suffered in the February coronavirus crash, they soon regained lost ground and even outperformed the rest of the stock market. This is largely because companies of all creeds are increasingly relying on technology to push their businesses into the modern age and facilitate the new normal of working from home.
Tech ETFs can be a great way to gain broad exposure to the sector.
For example, the iShares Global Tech ETF tracks the performance of a group of global equities involved in electronics, computer software and hardware, and other IT firms. The largest holdings are made up of some market-leading companies such as Apple, Microsoft, Visa, Mastercard and Samsung.
New tech ETFs
For those after a bit more excitement, there are plenty of ETFs that focus on specific areas of technology – including breakthrough areas. This means investors can easily gain exposure to fast-growing and revolutionary technologies such as artificial intelligence (AI) or quantum computing. Although these types of technologies are still yet to mature, taking a position now could set you up to benefit from the astronomic growth some of these sectors could experience.
Popular choices include:
- iShares Automation and Robot ETF: this tracks the performance of companies involved in developing technology, predominantly automation and robotics, in both developed and emerging economies. While its portfolio includes well-known firms like NVIDIA, it tracks a wide array of less well-known stocks like Lastertec, Advantest, Cloudera and Inphi.
- WisdomTree Artificial Intelligence ETF: this tracks the NASDAQ CTA Artificial Intelligence Index, which is comprised of stocks actively engaged in AI or are trying to use it to capitalise on business opportunities. Its top five holdings are in Blue Prism, Nuance Communications, Pegasystems, ServiceNow and AtoS.
- Global X Internet of Things ETF: this ETF gives you exposure to companies looking to benefit from the growing popularity of the Internet-of-Things (IoT), which includes everything from the rollout of 5G and faster fibre optic broadband, to the development of tech for connected cars, smart grids and homes. Its benchmark index is the Indxx Global Internet of Things Thematic Index.
- Defiance Quantum ETF: this ETF provides exposure to quantum computing, tracking stocks such as Cloudera, Maxar Technologies, Cirrus Logic, Ultra Clean Holdings and STMicroelectronics. Its benchmark is the BlueStar Quantum Computing and Machine Learning Index.
There is arguably no commodity more important than water, and yet it isn’t treated as a commodity like oil or gold by financial markets. This means exposure lies in equities that own water resources or are in charge of making the world’s water usage more efficient. Water utility stocks are known for their consistent and reliable businesses alongside steady returns and choosing an ETF can bolster these qualities.
- Lyxor World Water UCITS ETF: this ETF tracks the world’s 30 largest companies operating in the water infrastructure, utilities or treatment sectors, and who derive at least 40% of their revenue from water-related activities. Its top five holdings are in American Water Works, Geberit, Ferguson, XYLEM and Masco.
- Invesco Global Water ETF: based on the Nasdaq OMX Global Water Index, this ETF follows the performance of global stocks that help conserve and purify water for homes, businesses and industries. Its top five holdings are Danaher, Geberit, Ecolab, Ferguson and Pentair.
Clean energy ETFs
Attention on climate change is reaching new heights around the world, driven by major natural disasters that happened early on in 2020, such as the Australian wildfires and extreme flooding in Indonesia. There is no doubt that the world is moving toward cleaner energy to tackle the problems, making it a low-risk, high-growth sector for investors.
- Invesco WilderHill Clean Energy ETF: this ETF focuses on clean energy stocks in the US, spanning makers of electric and autonomous vehicles, firms developing hydrogen power systems and companies that help manage smart grids. Its top five holdings are in NIO, Ballard Power Systems, Bloom Energy, Plug Power and Tesla.
- ALPS Clean Energy ETF: this ETF is similar but has a greater blend of renewable energy companies in its top holdings and a slightly broader focus over North America rather than the US. Its top holdings include Tesla, Enphase Energy, Universal Display, Cree and First Solar.
Private equity ETFs
One area that is notoriously hard to gain exposure to is private equity, which refers to businesses that are not publicly listed. ETFs that track private equity can present a unique opportunity for you, especially if you have concerns over the growth prospects of publicly-traded companies.
- iShares Listed Private Equity UCITS ETF: this ETF offers exposure to private equity from North America, Europe and Asia, as well as publicly traded companies that themselves have great exposure to the space. Its top five holdings include Blackstone Group, KKR, Partners Group, Brookfield Asset Management and INC.
- Invesco Global Listed Private Equity ETF: this ETF invests in firms whose principal business is to invest in, lend capital to or provide services to privately held companies, including publicly traded companies like turnaround specialist Melrose. Other major holdings include 3i Group, Fosun International and The Carlyle Group.
Find more ETFs with our IG ETF screener
There is a suitable ETF for every investor; find yours with our ETF screener.
It allows you to filter through the thousands of assets available with IG, including sorting the ones that are eligible for ISA accounts. You can also filter them to match a specific asset class or country. Plus, if there’s an ETF you’d like to invest in that’s not currently available, simply email email@example.com or call 0800 409 6789 to request a new product.
Remember, most of our ETFs are also available for leveraged trading with CFDs and spread bets.
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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.
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