With thousands of ETFs to explore, here are five of the best to watch from around the world. This list includes passive and actively managed funds to suit various risk appetites.
Investing through Exchange Traded Funds (ETFs) is an incredibly popular trading strategy, among newer investors and old hands alike. ETFs allow you to buy into a ‘basket of securities’ based on a specific sector or investing approach, without having to buy the assets individually.
Investing in an ETF therefore allows for increased exposure to a diversified range of investments, with the trading liquidity of equity instead of the rigidity of a mutual fund, and the ability to manage risk by trading futures just like an individual stock.
Of course, ETFs can contain all sorts of investments, including stocks, commodities, and bonds. Other than the convenience, ETFs usually offer low expense ratios and lower broker commissions than buying the constituent assets individually. Naturally, there are many actively managed ETFs which are more expensive, but these tend to be less favoured than the passive funds.
As inflation remains elevated amid the tightening monetary environment, and recession is potentially inbound, it’s not surprising that the diversification of ETFs appears more attractive to many investors than ever.
However, it’s worth noting that an ETF will only ever perform as well as its underlying constituents. For the uninitiated, we offer an ETF screener that can help to inform your investing decisions — but these five could be some of the best to consider first.
Top global ETFs to watch
1. iShares Core S&P 500 ETF
There are many S&P 500 tracker ETFs, but the iShares offering is perhaps the most accessible to UK investors. The ETF attempts to exactly follow the performance of the US S&P 500 index, which tracks the performance of the largest 500 companies listed stateside — including market titans such as Apple, Tesla, and Microsoft, but also smaller mid-sized companies that could grow into the blue chips of tomorrow.
The ETF has an expense ratio of just 0.03%, and the wider index has delivered average annual returns of 10.15% since 1957. This reliable return makes the tracker an exceptionally popular ETF for SIPP holders looking to benefit from long-term capital gains growth — and though past performance is no guarantee of future success, S&P 500 index investing is widely considered to be a lower-risk investing strategy.
One issue to consider is that this ETF has lower liquidity than others on the market with higher expense fees, so is better suited to long-term investors.
2. ROBO Global Artificial Intelligence ETF
The Robo Global Artificial Intelligence ETF is focused on businesses driving ‘transformative innovations in robotics, automation, and artificial intelligence.’ These themes — and specifically artificial intelligence — are driving much of the stock market growth in 2023 after the advent of OpenAI’s ChatGPT.
The ETF invests in 80 businesses focused on AI and cloud computing, including Fanuc, IPG Photonics, Kardex, and Samsara. These are not mainstream names but are at the forefront of robotics development — and at lower than expected risk. The ETF has come close to matching S&P 500 returns over the past decade.
3. iShares UK Dividend UCITS ETF
The iShares UK Dividend UCITS ETF focuses on the most appealing strength of the some of the best London-listed companies — reliable dividend returns.
Instead of investing in all the companies on the FTSE 100 or FTSE 250, it instead offers diversified exposure to the top 50 UK companies within the FTSE 350 with the highest dividend yield (excluding investment trusts).
British American Tobacco, Rio Tinto, Vodafone, and HSBC are its top four holdings, alongside other miners, banks, and several defensive stocks with a reliable history of dividend pay-outs. Of course, there are risks — dividends are not guaranteed and cyclical companies like Rio Tinto or Persimmon can see their dividend yields fall in poor years.
4. ARK Innovation ETF
Cathie Wood's polarising ARK Innovation ETF gained significant attention in the pandemic years for its remarkable performance in favourable market conditions. However, you pay for active management; ARKK's expense ratio stands at 0.75%.
Despite facing challenges in 2022, ARKK has rebounded by 53% in 2023 as investors consider the impact of AI, alongside hopes that the Federal Reserve is close to finishing its rate hiking cycle as inflation falls to more manageable levels.
2023 has been exceptionally positive for growth-focused assets, and many of the fund's holdings have experienced extraordinary growth. Top holdings, such as EV trailblazer Tesla, have recovered lost ground — and cryptocurrency exchange operator Coinbase has surged after the SEC’s failed lawsuit against XRP.
5. Procure Space ETF
The Procure Space ETF trades under the UFO ticker but could be a serious choice for investors looking to invest in space technology developments and the commercialisation of space. The ETF seeks to track an equity index called the S-Network Space Index, which follows a selection of space-focused companies.
These include major satellite communications businesses such as Iridium, Sirius XM, and Garmin, as well as lesser-known companies like Trimble and Rocket Labs. While it also invests in defence companies like Boeing and Raytheon, at least 80% of the index weight is allocated to companies that derive a majority of revenues from space-related industries.
UFO is a popular choice for investors waiting for the SpaceX IPO, but does come with a higher than average 0.75% expense ratio.
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