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Best ETFs 2020
Whether you're looking for buy and hold, dividend or growth ETFs, we've covered the best ETFs.
Not everyone wants the same type of ETF. We’ve compiled some of the best ETFs for the different types of investing style, including ETFd that offer exposure to global markets, ETFs for dividends, ETFs suitable to buy and hold and growth ETFs. Find out the ETFs and a little about each one.
What makes a “good” ETF?
ETFs aren’t like active funds, where a ‘good’ fund is judged by whether it achieves returns in excess of their benchmarks. Generally, the best ETFs do exactly what they say on the tin – achieve low-cost, efficient access to specific markets. They need to be cheap, they need to be liquid and they need to be widely available. The market is always diversifying and new opportunities come to market all the time. Here are our thoughts for the best ETFs for different types of investor.
The best ETFs for one-stop shop exposure to global markets
If you’re just looking for an ETF which is broadly exposed to the whole world, which you might want to do for simplicity’s sake, then these are the ones to take a look at.
The Invesco MSCI World UCITS ETF
iShares MSCI Europe SRI UCITS ETF
Vanguard FTSE All-World UCITS ETF
This ETF replicates the performance of the MSCI World index, which in turn has exposure to over 1,600 stocks across 23 countries globally. It is £2.1bn in size (in the UK) and has a total expense ratio of just 0.19%. It was launched in 2009.
The MSCI World index reflects the performance of global stock markets in recent years, so it has a relatively high weighting in technology, and its largest holdings are in Apple, Microsoft, Amazon, Facebook and Alphabet. However, this is far less concentrated than it would be in, say, a S&P 500 ETF. As such, it is a good way to gain diversified exposure to global stock markets at low cost.
Socially-responsible investing is becoming an increasing priority for many investors. This fund from iShares was a pioneer, having launched in 2011. It follows the MSCI Europe SRI Select Reduced Fossil Fuels index, tracking companies from across Europe. Only companies with high environmental, social and governance (ESG) ratings relative to their sector peers make it through the screens.
It avoids companies who mine or produce fossil fuels through extraction and production activities. The weight of each company is capped at 5%. Its total expense ratio is just 0.2% and its top holdings include Roche, Siemens and Unilever.
This ETF tracks the FTSE All World index, which includes approximately 3,900 holdings in nearly 50 countries. It includes emerging markets and covers more than 95% of the global investable market capitalisation.
The fund is well-established, having run since 2012 and is now $5.3bn in size.
Its ongoing charge is just 0.22% and Vanguard employs partial physical replication to match the performance of the index. While its largest holding is Apple, it also includes Chinese technology giants Alibaba and Tencent.
The best dividend ETFs
Dividend investing is hugely popular in the US and the UK, with investors keen to generate a bit of passive income from their portfolios. If that sounds like you, then check out the following ETFs.
WisdomTree Global Quality Dividend Growth UCITS ETF
Fidelity Global Quality Income UCITS ETF
Xtrackers MSCI World High Dividend Yield UCITS ETF
It has been a tough time for dividend stocks and some markets – notably the US and UK – have seen around half of all payouts slashed. It has also exposed those companies that were over-distributing dividends at the expense of their balance sheets.
As such, having a ‘quality’ screen has been a particular advantage.
This WisdomTree ETF sits top of its sector for over one year. It tracks the WisdomTree Global Developed Quality Dividend Growth Index. Only $45m in size, it has a total expense ratio of 0.38%. Unlike many dividend strategies it retains a weighting to relatively low-yielding, but high growth companies such as Apple and Microsoft. This means its dividend yield is around 2.4%, but capital growth has been strong.
The Fidelity Global Quality Income UCITS ETF follows a similar approach to the WisdomTree fund, focusing on companies that can grow their dividends rather than those that are paying a high dividend today (which may indicate distress). Its income yield is a little higher, at 2.54% and its total expense ratio is similar at 0.4%.
The fund tracks the Fidelity Global Quality Income Index and is almost two-thirds weighted to the US. Information technology is the largest weighting, at around 20%.
While it has been a horrible time for any fund that prioritises high dividends, some have done notably better than others. The Xtrackers MSCI World High Dividend Yield UCITS ETF has been one of the best in a tough environment. It is a small fund, just £31m in size and has an annual management fee of 0.19%.
It has a sustainable income screen, which means it avoids those companies where dividends look too high and likely to be cut. While it doesn’t have the same weighting in technology names as the other two dividend ETFs, its top holdings are in Proctor & Gamble, Verizon Communications, Roche and Merck. It still has more than half of its holdings in the US, but healthcare, consumer staples and financials each form a significant chunk of the portfolio.
Best buy and hold ETFs
Buy and hold does what it says on the tin. If you want to simply buy an ETF, hold it, and hopefully get some decent capital gains – check out these three ETFs as a starter.
iShares NASDAQ 100 UCITS ETF
Vanguard FTSE Emerging Markets UCITS ETF
iShares Ageing Population UCITS ETF
Any portfolio that hopes to capture future trends needs to have a decent weighting in technology. The right time to buy technology is always 10 years ago and the asset class is likely to be volatile. That said, a diversified holding in blue-chip technology companies is as safe a way to invest as any.
The Nasdaq has long been a proxy for the technology sector. The iShares NASDAQ 100 UCITS ETF aims to replicate the performance of its 100 largest stocks, with a total expense ratio of 0.33%. Its largest holdings are the familiar ‘FAAMG’ names – Facebook, Amazon, Apple, Microsoft and Alphabet (owner of Google). The fund is now $5.9bn in size.
It has been a tough time for emerging markets in recent years. The strong Dollar has been a headwind and investors have preferred the more reliable growth characteristics of global technology stocks. Nevertheless, all portfolios should have an eye on tomorrow’s winners and it seems likely that many of them will be in emerging markets.
The Vanguard ETF tracks the FTSE Emerging Markets index, which comprises 1,722 companies, and has an ongoing fee of 0.22%. Around half the fund is in China, which has seen stronger growth than any other emerging market in recent years. It is also heavily weighted to a number of Chinese technology names – Alibaba and TenCent are its two largest holdings. That said, no company is more than 8% of the index and it provides access to a broad range of countries and sectors.
Getting older is no fun, but investors can make money out of it. This ETF tracks the performance of the STOXX Global Ageing Population Index, which invests in developed and emerging market companies generating significant revenues from the growing needs of the world’s ageing population. The pandemic has served to highlight the political and healthcare difficulties created by ageing populations and this looks set to be a theme for the long term.
The fund is around half invested in the US. It has a high weighting in pharmaceutical companies, including Novocure, Mirati Therapeutics and Varian Medical Systems. However, it is broader-based than a healthcare-only fund. It has an ongoing fee of 0.4% and is currently $280m in size.
Best growth ETFs
If you’re targeting growth above all else, these ETFs are a good place to start your search.
Invesco KBW Nasdaq Fintech UCITS ETF
Lyxor MSCI Disruptive Technology ESG Filtered UCITS ETF
Invesco Global Water ETF
The challenge with any technology investment is to find it before it takes off. Many sector-specific technology ETFs are in exciting, high growth areas – cloud computing, artificial intelligence – but they have already seen significant share price growth and, in some cases, look expensive. Fintech appears to have a bright future ahead – the sector is ripe for disruption and greater efficiency – but has not yet seen the share price growth of some other key sectors.
The Invesco KBW Nasdaq Fintech UCITS ETF has an ongoing fee of 0.59% and is invested predominantly in US-based financial technology companies. Its largest holdings are groups such as payment systems provider Square and data provider CoreLogic.
‘Disruptive’ is a catch-all term for any technology with the ability to change profoundly the sector in which it operates. This means the ETF is more diversified than many of its technology peers. It aims to track the MSCI ACWI IMI Disruptive technology ESG Filtered Index, which in turn tracks those companies expected to derive significant revenue from areas such as 3D printing, the ‘Internet of Things’, cloud computing, Fintech, digital payments, healthcare, robotics, clean energy and smart grids, and cybersecurity.
The wider fund is now almost £8bn in size, with an annual management fee of 0.15%. It is well-diversified, with the largest holding representing just 1.5% of the fund. Its top holdings include solar panel company Sunrun, biotechnology group Arena Pharmaceuticals and hydrogen fuel cell group Plug Power.
Forget gold, clean water may yet prove the most precious commodity of the future. Some pension funds are already asking companies to report on their water strategies, viewing it as a key long-term business risk. Water assets can be a good source of diversification for a portfolio, but also a long-term capital growth story.
The Invesco Global Water ETF is now $24.7bn in size. It tracks the Nasdaq OMX Global Water index, which follows those companies creating products designed to conserve and purify water for businesses, homes and industries. Its largest three holdings are Danaher, Geberit and Ecolab.
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