Did you know that as of 29 Jul 22, the FTSE 100 is down -1.59% year-to-date while the NASDAQ 100 is down -22.93%?
While the US markets had provide outsized returns previously, the same tech and growth stocks that were responsible for the returns have now become the achilles heel that’s weighing the market down.
Comparatively, the UK stock markets have weathered the rising interest rate environment fairly well.
Most investors know that the S&P500 is the go-to ETF to invest in the US markets, but what about the UK markets? Well, if you’re looking for ways to invest and gain exposure to the UK markets, this guide is written for you.
Here, we will compare the best UK ETFs, discuss the pros and cons of investing in ETFs, detail how to invest in UK ETFs, and answer frequently asked questions that you may have.
But first,
What is an ETF?
Exchange-traded funds or ETFs are a type of investment fund that holds a basket of assets, such as stocks or bonds, and can be traded on an exchange like a stock. ETFs offer many benefits, including low costs, diversification, and liquidity.
Now that we’re on the same page, let’s get into it!
Best UK ETFs
| iShares Core FTSE 100 UCITS ETF (Dist) | MSCI United Kingdom UCITS ETF (Acc) | SPDR® FTSE UK All Share UCITS ETF (Acc) | |
| Primary Exchange | London Stock Exchange | London Stock Exchange | Deutsche Börse (Primary) |
| Ticker | ISF | UC64 | SPYF |
| Tracks | FTSE 100 Index | MSCI UK Index | FTSE All-Share Index |
| Denomination | GBP | GBP | EUR |
| Expense Ratio | 0.07% | 0.20% | 0.20% |
| Fund Size (m £) | 10,456 | 1,454 | 649.83 |
| No. of holdings | 100 | 81 | 582 |
| Who should consider? | Investors who want to invest in the top 100 companies listed in UK | For investors who want exposure to mid and large cap UK stocks | Investors who want exposure to the whole UK stock market |
These were compiled based on the assumption that you’d like to gain exposure to the UK stock markets as a whole. If you prefer thematic ETFs, I’ve listed two below as well.
Best ETF for Blue Chip UK stocks (FTSE 100)
The FTSE 100 is an index of the 100 largest companies listed on the London Stock Exchange. It is a market capitalisation weighted index and is often used as a proxy for the UK stock market.
If you wish to invest in the UK market and unlock market returns of about ~7%:
Best FTSE 100 ETFs
| iShares Core FTSE 100 UCITS ETF (Dist) | Vanguard FTSE 100 UCITS ETF Dist | iShares Core FTSE 100 UCITS ETF GBP (Acc) | |
| Exchange | London Stock Exchange | London Stock Exchange | London Stock Exchange |
| Ticker | ISF | VUKE | CUKX |
| Fund Manager | BlackRock Asset Management | Vanguard | BlackRock Asset Management |
| Tracks | FTSE 100 Index | FTSE 100 Index | FTSE 100 Index |
| Denomination | GBP | GBP | GBP |
| Expense Ratio | 0.07% | 0.09% | 0.07% |
| Fund Size (m £) | 10,456 | 3,749 | 1,812 |
| No. of holdings | 100 | 102 | 100 |
FTSE 100 is the index for the UK market, here’re 3 ETFs that track it
- iShares Core FTSE 100 UCITS ETF Dist (ISF)
- Vanguard FTSE 100 UCITS ETF Dist (VUKE)
- iShares Core FTSE 100 UCITS ETF Acc (CUKX)
Similarities
These three ETFs are similar in that they track the same underlying FTSE 100 index which means their returns would be very similar.
However, there are subtle differences which will affect your choice as an investor:
Differences between ISF vs VUKE vs CUKX
1) Fund size
Fund size is a good proxy for how popular and as a side-effect, how much liquidity the ETF has. This is important because you want to own ETFs with good liquidity so that you can buy and sell whenever you wish to instead of having to queue and wait for your order to be processed.
Between the three, ISF has the largest fund size at 10B while VUKE’s 3B and CUKX’ 1.8B are only a fraction.
2) Expense ratio
This is the cost of investing in the ETF. An ETF is basically a fund managed by fund managers, and they will need to be paid to do their work. The expense ratio tells you how much ‘fees’ the ETF charges.
Of course, you’ll want to keep it as low as possible so that the expense ratio doesn’t eat up your potential returns.
3) How are dividends handled?
ISK and VUKE are both distributing ETFs which means they’ll distribute the dividends collected from the underlying holdings to their shareholders on a fixed schedule. Both ISF and VUKE pay dividend on a quarterly basis.
On the other hand, CUKX is an accumulating ETF which means the dividends collected will be automatically reinvested into the ETF by the fund manager at no extra cost. Such ETFs are great for investors who wish to compound their dividends.
Best ETF for Mid and Large Cap UK Companies
The UK stock market is huge and at the point of writing, there are 2483 companies listed on the London Stock Exchange (LSE) alone. That’s…a lot.
So, if you think that investing in the FTSE 100 which gives you exposure only to the 100 largest companies listed on the LSE isn’t sufficient, then you may want to consider the following indices that track mid and large cap UK companies.
| MSCI United Kingdom UCITS ETF (Acc) | Lyxor Core UK Equity All Cap ETF (Dist) | |
| Exchange | London Stock Exchange | London Stock Exchange |
| Ticker | UC64 | LCUK |
| Returns | 9.12% (3 years) | 5.67% (3 years) |
| Fund Manager | UBS Asset Management | Lyxor Asset Management Group |
| Tracks | MSCI UK Index | Morningstar UK |
| Denomination | GBP | GBP |
| Expense Ratio | 0.20% | 0.04% |
| Fund Size (m £) | 1,454 | 329.6 |
| No. of holdings | 81 | 328 |
| tracking error | 0.1% (5 years) | 0.03% (5 years) |
MSCI United Kingdom UCITS ETF (UC64)
The MSCI United Kingdom UCITS ETF is managed by UBS Asset Management. It was launched in 2013 and is an accumulating ETF.
It tracks the MSCI UK Index which measures the performance of large and mid cap companies in the UK market. As of Jun 2022, it has 81 constituents that include companies across 11 sectors. The MSCI UK Index delivered a 3.8% 10 year annualised return as of Jun 2022 and a 5.86% annualised return since May 1994.
Lyxor Core UK Equity All Cap UCITS ETF (LCUK)
The Lyxor Core UK Equity All Cap UCITS ETF is managed by Lyxor Asset Management Group. It was launched fairly recently in 2018 and is a distributing ETF with bi-yearly payouts.
It tracks the Morningstar UK Index which measures the performance of the top 97% of stocks on the UK stock market, by market capitalisation. As of Jun 2022, it has 319 constituents and had delivered a total return of 17.77% in the past 10 years.
Key Differences between UC62 vs LCUK
You should have spotted several key differences in the table above:
- Expense Ratio
UC64 is relatively more costly with a total expense ratio of 0.2% as compared to LCUK’s 0.04%.
- Returns
On the other hand, UC64 delivered a higher 3 year return of 9.12% vs LCUK’s 5.67%.
- Fund Size
UC64 is also a relatively larger fund with a fund size of £1,454M as compared to LCUK’s £329.6M.
You should note that UC64 has a longer history as it was launched in 2013, as compared to LCUK which was launched in 2018.
Best ETF for all UK listed stocks
If you’re a minimalist and want a single ETF that gives you exposure to the entire UK stock market, then look no further:
SPDR FTSE UK All Share UCITS ETF (Acc)
- No. of holdings: 582
- 10 year return (annualised): 6.94%
- Expense Ratio: 0.2%
- Tracking error (annualised, 3 years): 0.08%
The SPDR FTSE UK All Share ETF (SPYF) was launched in 2012 and tracks the FTSE All-Share index which represents the performance of all listed companies on the LSE’s main market and gives you coverage of 98% of the UK market.
It is trades on the Deutsche Borse in EUR under the ticker SPYF and is also available on the London Stock Exchange in GBP and SIX Swiss Exchange in CHF, under the ticker FTAL.
It delivered a 10 year annualised return of 6.94%.
Do note that SPYF is an accumulating ETF, so don’t expect a dividend payout. Instead, the dividends will be reinvested into the fund for greater capital appreciation over the long term.
Best UK ETF for exposure to the entire world
If you’re looking for international exposure for your portfolio, then World ETFs may be what you’re looking for.
The three most popular ones are:
- Vanguard FTSE All-World UCITS ETF (VWRA)
- iShares Core MSCI World UCITS ETF (IWDA)
- SPDR MSCI World UCITS ETF (SWRD)
I shall not go into the details here as these have been covered in our article on the Best Irish Domiciled World ETFs.
Best UK Thematic ETF for investors who want more
Thematic ETFs gives you exposure to various investing themes. In this section, we explore more the common UK Thematic ETFs you might want to consider.
iShare UK Property ETF (IUKP)
When people think about investing in UK, they usually think about property investing due to its appealing and accessible buy-to-let market.
But investing in properties directly requires a higher capital as well as the time and effort to manage the actual properties. Also, as a independent property investor, you may not be able to own property across all the sectors especially when you’re new to the game. Hence, you may want to consider an ETF (or even UK REITs).
You can gain exposure to the UK property market through the iShare UK property ETF:
| iShare UK Property ETF | |
| Primary Exchange | London Stock Exchange |
| Ticker | IUKP |
| 10 Year Return | 6.26% |
| Fund manager | BlackRock Asset Management |
| Tracks | FTSE EPRA/NAREIT UK Index |
| Denomination | GBP |
| Expense Ratio | 0.40% |
| Fund Size (m £) | 485 |
| No. of holdings | 47 |
The iShare UK Property ETF was launched in 2007 and tracks the FTSE EPRA NAREIT UK Index which aims to follow trends in real estate equities.
At the point of writing, IUKP provides diversification across various property sectors:
- Retail REITs: 4.25%
- Other Specialty REITs: 5.32%
- Real Estate Holding and Development: 5.71%
- Residential REITS: 9.61%
- Office REITs: 9.78%
- Diversified REITS: 29.41%
- Other: 39.92%
At the point of writing, IUKP had delivered relatively good returns over the years:
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |
| Total Return (%) | 28.5 | 22.6 | 20.3 | 11.6 | -9 | 11.8 | -13.7 | 29.6 | -16.3 | 28.1 |
| Benchmark (%) | 29.2 | 23.2 | 20.8 | 11.7 | -8.9 | 12.1 | -13.6 | 29.8 | -16.3 | 28.3 |
SPDR S&P UK Dividend Aristocrats UCITS ETF (Dist)
Dividend Aristocrats refer to stocks that have increased their dividend for at least 25 consecutive years.
Investors often look to these companies as they have strong fundamentals, good management teams and a sustainable competitive advantage. Also, dividend aristocrats are generally large blue-chip stocks which tend to be less volatile than small-cap stocks.
The S&P UK High Yield Dividend Aristocrats Index tracks the performance of high-yielding dividend aristocrat stocks in the UK. It is currently made up of 39 constituents, has a dividend yield of 3.9%.
| SPDR S&P UK Dividend Aristocrats UCITS ETF (Dist) | |
| Primary Exchange | London Stock Exchange |
| Ticker | UKDV |
| Fund manager | State Street Global Advisors |
| Tracks | S&P UK High Yield Dividend Aristocrats Index |
| Denomination | GBP |
| Expense Ratio | 0.30% |
| Fund Size (m £) | 485 |
| No. of holdings | 47 |
| Dividend Yield | 3.95% |
| Distribution Frequency | Semi-Annually |
As dividends are not taxed in the UK, the UKDV ETF may just be an option that income investors could consider.
However, the downside of dividend aristocrat stocks is that their share price grows slowly. Hence, you may not be too impressed with its 4.07% return since inception in 2012.
How to invest in UK ETFs?
The easiest way to invest in UK ETFs is to do so through an online broker through which you can easily set up an account and gain access to ETFs listed in stock markets across the UK.
Some trusted ETF brokers include Interactive Brokers, Hargreaves Lansdown, AJ Bell Youinvest, Charles Schwab, etoro, and more.
You should take note of their range of ETFs and the fees they charge per transaction before choosing a broker. If you’d like a comparison, do let us know in the comments below.
Advantage of investing in UK ETFs
One of the main advantages of ETFs is that they offer a low-cost, and tax-efficient way to invest in a diversified range of assets.
They also offer investors the ability to trade them easily on a stock exchange, which means that investors can buy and sell them throughout the day like they would with any other stock.
Also, ETFs tend to have lower costs than traditional mutual funds, which makes them a more attractive option for investors who are looking to grow their money at a lower cost, over the long term.
Finally, there are no dividend taxes in UK, hence you get to keep whatever dividend payouts you get from your ETFs.
Frequently Asked Questions
Is there a FTSE 250 ETF?
Yes, in fact there are three:
- iShares FTSE 250 UCITS ETF
- Vanguard FTSE 250 UCITS ETF
- Xtrackers FTSE 250 UCITS ETF
| iShares FTSE 250 UCITS ETF | Vanguard FTSE 250 UCITS ETF | Xtrackers FTSE 250 UCITS ETF | |
| Exchange | London Stock Exchange | London Stock Exchange | London Stock Exchange |
| Tickers | MIDD | VMID | XMCX |
| Fund Manager | BlackRock Asset Management | Vanguard | Xtrackers |
| Tracks | FTSE 250 Index | FTSE 250 Index | FTSE 250 Index |
| Denomination | GBP | GBP | GBP |
| Expense Ratio | 0.4 | 0.10% | 0.15% |
| Fund Size (m £) | 1,137 | 1,836 | 46 |
| No. of holdings | 256 | 251 | 258 |
| Dividend Treatment | Distributing | Distributing | Distributing |
What is a UCITS ETF?
UCITS refers to “Undertakings for the Collective Investment in Transferable Securities” which is a regulatory framework for the management and sales of mutual funds in Europe.
UCITS funds registered in Europe can be sold worldwide while following a single regulatory system.
Foreign investors like to invest in UCITS funds because they are relatively safer and also are protected from US tax laws.
