Looking to still add to your ISA? One way to make sure you do not miss out on this year’s tax free allowance is to add exchange traded funds (ETFs), which come with low risk and low costs.
(ETFs) are often popular with investors according to investment management firm Blackrock, as global ETF asset growth reached $12trillion in 2023 – up from $10trillion in 2022, and is expected to reach $14trillion by the end of 2024.
ETFs are attractive as they allow you to diversify, can be easy to trade and are less risky compared to individual stocks.
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Research from AJ Bell shows over the past five years £9 billion has been pulled from active funds by retail investors and a net £75 billion was poured into passive alternatives.
According to one of the largest investment platforms, Hargreaves Lansdown (HL), these are the four ETFs worth looking at ahead of the new tax year for your stocks and shares ISA.
Four ETFs to invest in
Vanguard FTSE All-World ETF
This Vanguard ETF tracks the performance of the FTSE All-World Index and is ideal if you’re looking for something low-risk, as the fund invests in most of the companies in the index.
Hal Cook, senior investment analyst at Hargreaves Lansdown says the funds are tracked in line with each company’s index weight. “This is known as partial replication and can help the fund track the index closely.”
When it comes to passive investments, Vanguard is a given with it being one of the largest index funds in the world- which means it has the backing-power and resources to track its ETFs while keeping costs low.
“Global stock market trackers provide a good foundation to an investment portfolio focused on long-term growth, income, or both. Investing in companies across the globe provides a good level of diversification in a single ETF,” Cook adds.
“The largest regional investments within the index are in the US, Europe and Japan. The sectors that have the most invested are technology, financials and consumer discretionary.”
Vanguard FTSE Emerging Markets ETF
Whilst investing in emerging markets tends to come hand-in-hand with more risk and volatile markets, it’s an ideal option for your ISA as it requires long-term investment, and has the potential for strong growth.
According to Blackrock, investments into emerging markets hit $28.2bn in February- a historic high and more than a 20% rise from January’s recorded $23.3bn.
HL vouches for the Vanguard FTSE Emerging Markets ETF as it tracks the performance of emerging funds at a low cost.
This Vanguard ETF exposes large and medium-sized companies in emerging markets, including India, China and Taiwan.
Data by Blackrock shows investors opted for domestic Chinese equity ETFs with most investors pumping their money into vehicles listed in the Asia-Pacific region.
Cook says: “Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in the region.
Domestic consumption is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth.
These countries have also become hotbeds of innovation and some companies based there are at the forefront of technology.”
iShares UK Dividend ETF
According to the site Finder, iShares UK Dividend ETF is the best UK dividend ETF, based on its performance over the last five years.
The ETF tracks the performance of the FTSE Dividend UK+ index at a low cost.
The fund lists 50 of the highest dividend-paying UK stocks across various sectors including finance, consumer staples and materials, to offer diversification.
Cook believes that this dividend ETF could be a great option as “You can take the pay-outs to supplement your income and have a bit of extra cash in your back pocket.
Or if you’re targeting growth and aiming to build your portfolio for longer, reinvesting dividends can help grow your pot thanks to the beneficial effect of compounding.”
iShares Global Corporate Bond ETF
The last recommendation by HL steers away from shares and looks at bonds, despite its lower return over the long term.
That said, according to Blackrock, bond ETFs are becoming popular as fixed-income yields are more attractive compared to ten years ago.
This fund tracks the performance of the Bloomberg Global Aggregate Corporate Bond index at a low cost.
The investment platform believes this offers more diversification than shares, as “the index offers exposure to investment grade bonds issued around the globe,” says Cook.
“There are bonds from sectors including banking and the consumer. Investment grade bonds are those from the lower end of the risk spectrum, meaning fewer companies in this area of the market are expected to default on their bond payments.”