The top 50 has a bias towards equities, although fixed income also has a decent presence, with nine ETFs investing in bonds included this year. We focus on passive trackers – while active ETFs are undoubtedly on the rise and can have their merits, when it comes to active investing we prefer to focus our attention on open-ended fund and investment trust vehicles, which have a much longer history. These are covered in our annual Top 50 Funds list.
For this ranking, we tend to start by thinking about which markets and areas we want to cover and in what way, and which index the funds we pick should track. We then consider a range of other factors, including headline fees, spreads and size, and the liquidity of the ETFs on offer. Liquidity considerations lead to a bias towards bigger funds, which explains the heavy presence of iShares products in the list.
For the core section, we continue to focus hard on costs. For example, the UBS Core MSCI World ETF (WRDA) remains our favourite global tracker for developed markets with a fee of just 0.06 per cent, while SPDR S&P 500 ETF (SPXL) is still a great option to track the S&P 500 – as well as being the very cheapest ETF in the entire list with a fee of just 0.03 per cent.
For the satellite and niche sections, we take special care in analysing what sort of ETF readers might want in their portfolios and which index might work best for their purpose, while also still looking for funds that are cheap and liquid. The vast majority of names here has stayed the same as last year, from the Vanguard FTSE 250 ETF (VMID) to track domestic mid-caps, to the iShares Edge MSCI World Value Factor ETF (IWFV) for investing using a value strategy, to the hugely popular gold tracker Invesco Physical Gold ETC (SGLD).
Although we do feature a few hedged options in our core section and for bonds, we tend to favour ETFs that are priced in sterling but unhedged – on the basis that for most equity investors, hedging adds an unnecessary layer of complication and costs, with uncertain outcomes.
When possible, we feature the ETF’s accumulation share class, where dividends are automatically reinvested rather than paid out. There are some exceptions, such as the funds whose purpose is to generate income, and those that only offer distribution share classes (this tends to be the case for sterling-hedged ETFs, for example).
Where we have kept sustainable ETFs, we continue to prefer MSCI’s SRI indices, which have relatively strict criteria and select the stocks with the highest ESG scores in each sector. It isn’t a perfect system, but for ethically minded investors who are happy to sacrifice some returns for their values, we think this methodology has merit.
For income, we tend to steer clear of funds that focus exclusively on the highest yields, and prefer options that include screens for dividend growth or at least reliability. These features remain crucial for investors who need to draw regular income from their portfolios, for example in retirement.
The list only includes three thematic ETFs this year. Themes can sometimes be a useful framing to help investors spot opportunities, and they are certainly an exciting and intuitive way of investing. However, performance can be very mixed, and thematic ETFs are often volatile and expensive. Investors should tread carefully here.
Finally, remember that this list is not meant to be exhaustive, and that there is no single ETF out there that will be right for every single portfolio. But we hope it can offer some helpful pointers – so you can use it as a starting point in your research for the best funds for your needs.