IC Top 50 ETFs 2024: the best ETFs to buy

The Investors’ Chronicle Top 50 ETFs list is now in its 11th year and continues to serve the same purpose as always: it highlights the exchange-traded funds (ETFs) we view as the most useful low-cost starting points for an investment portfolio.

As a general rule, we tend to look for funds that track the most appropriate index, stick to a robust process and offer a mix of competitive pricing and good liquidity.

The fortunes of active funds can easily wax and wane over time, but the pros and cons of holding a specific tracker tend not to change quite so much.The list therefore has a decent level of continuity.

This year we have replaced seven of the funds in the line-up, one fewer than last year. We also stick with the structure first introduced in 2019, which splits the top 50 into three different sections based on how an ETF might fit into a portfolio.

The categories are more or less self-explanatory. The Core names in the list provide cheap, liquid exposure to the mainstream markets that form the backbone of many a portfolio, from the S&P 500 to the FTSE 100 and assets such as government bonds.

The funds in the Satellite group target an area or theme that is absent or thinly represented by the Core options, with the choices ranging from dividend-paying shares to smaller companies, funds targeting different investment styles such as value investing, and dedicated exposure to markets such as China. These picks are much more nuanced than the likes of an S&P 500 tracker.

The Niche category contains even more specialist options, from commodity funds to ETFs that target a promising investment theme.

Some may argue that such funds can also function as core holdings, but it’s worth remembering that they often come with bigger risks and can require a greater level of due diligence.

We maintain a chunky bias to equity funds, if slightly less so than before. Some 37 of the 50 funds focus on shares, with the balance mainly in fixed income products. The list still focuses mainly on Core and Satellite funds.

The changes

There has long been something of a price war in the passive funds space, with providers cutting already-low charges in a bid to poach customers from their rivals. That dynamic has continued in the past year, with companies such as SPDR and Amundi slashing fees on many products. This has prompted a couple of rare changes to our Core list, as we opt for cheaper US and global equity funds.

It’s worth highlighting a key trade-off here. As our methodology boxout below outlines, we tend to back large, liquid funds because they are less at risk of closure and typically have tighter trading spreads, reducing your overall cost of investment.

In some cases, investors will be happy to back a fund that is smaller and has wider trading spreads but charges a lower fee. After all, its bargain price tag can help assets swell fairly rapidly. And wider trading spreads are also less of an issue for those who buy and hold a fund rather than frequently shifting their portfolio.

Some other technicalities can on rare occasions make a big difference. In the case of the new US equity fund added to the 2024 list, it’s worth noting that the accumulation share class has a much lower unit cost than the income share class.

A high unit cost can sometimes be a headache for investors, given that they need plenty of cash to buy just one of those units. That means they can sometimes end up with cash on the sidelines until they have amassed enough to buy in.

We generally favour accumulation share classes, bar when we highlight funds (such as dividend ETFs) that specifically seek to generate income. A distribution or income share class will pay out any dividends generated, while the accumulation option will see those dividends reinvested – a difference that can have a substantial effect on long-term end returns. But in some cases, as with funds that hedge your currency exposure back to sterling, a distribution share class can end up being the only option available.

On the whole, we remain fairly content with the current selection, from the core options to the more specialist funds, not least because the list covers the main investment regions and plenty of interesting specialisms.

But this year we have tinkered at the edges in the hope of broadening out what’s on offer. We’ve removed two Satellite funds in the US equity category, given the list already contains similar names in the global group. We’ve also dropped one poor-performing thematic ETF; the extra space in the list has been used to add an emerging market single-country fund and two funds that focus on different asset classes.

Horses for courses

Building a Top 50 tends to involve setting ground rules about the type of funds we back in more specialist areas, and attempting to be consistent in this regard. With the ESG funds in the Core category we still tend to favour names that use MSCI’s SRI indices, which are more stringent than some other options and back the best 25 per cent of companies in a sector as judged by certain metrics. They do, however, still include sectors some ESG aficionados might wish to avoid, such as banks.

For income, we continue to favour dividend ETFs with a focus on more sustainable payouts, meaning our options have tended to look pedestrian compared with riskier options that concentrate more on chasing yield. For example, the iShares UK Dividend ETF (IUKD) exited the list in 2020, but has notably outpaced the more conservative SPDR S&P UK Dividend Aristocrats ETF (UKDV), in part because of its exposure to energy majors.

The list still includes a handful of thematic funds, but we maintain a broadly skeptical view of such products, given the difficulty of successfully capturing the benefits of a given ‘theme’ within a single portfolio.