Highlights

• Investors looking to invest in stock market may consider investing in ETFs that invest in the whole UK stock Market index and it is typically low cost.
• ETF offers a basket of securities that trades on the stock market and have lower expense ratios and broker commissions.
• On the UK Stock market there are four indices that track ETFs include FTSE 100, FTSE All-Share, MSCI UK and Morningstar UK.

The United Kingdom is the fifth largest economy in the world by nominal gross domestic product (GDP) and has a major focus on American investors. As the world economy contracted sharply due to Covid-19 pandemic last year, the UK economy was no exception. But, at present, the country’s economy is on recovery path as the vaccination programme has reached most citizens.

According to UK’s Office for National Statistics (ONS), the country’s gross domestic product (GDP) is estimated to have increased by 5.5% in second quarter (April to June) 2021 following the easing of restrictions. The estimation is then revised to 4.8%, as the growth slowed as Covid-19 cases rose again in July 2021 and economists expects GDP to expand by 7% for the year.

Investors looking to invest in stock market may consider investing in ETFs that invest in the whole UK stock Market index and it is typically low cost.

On the UK Stock market there are four indices that track ETFs include FTSE 100, FTSE All-Share, MSCI UK and Morningstar UK. Beside these indices other four alternative indices on mid and small caps and equity strategies can be considered, including FTSE UK Dividend+, FTSE 250, MSCI UK Small Cap and S&P UK High Yield Dividend Aristocrats.

ETFs simplified

ETF stands for Exchange Traded Fund, which can be defined as a security that tracks the performance of index, sector, commodity, or others and is passively managed. ETFs pools the prices of individual security to a large and diverse range of securities and uses it to purchase various tradable monetary assets such as shares and debt securities.

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Exchange Traded Funds offer low expense ratios and low broker commission as they are not managed actively. While investing in ETFs you often invest in hundreds of different stocks from various sectors and markets.

Also read: What is Crypto ETF?

Here are some of the best-performing UK ETF based on performance over the past year includes:

• First Trust United Kingdom AlphaDEX Fund (FKU)

Issuer: First Trust

Expense Ratio: 0.80%

Net Assets: US $94.2 million

NAV: 43.82

Dividend Yield: 2.02%

YTD Daily Total Return: 15.96%

One-year total return: 43.6%

Incepted on 14 February 2012, First Trust United Kingdom AlphaDEX tracks the NASDAQ AlphaDEX UK Index that uses the AlphaDEX stock selection method to choose stocks from the NASDAQ UK Index. FKU ETF invests in a wide range of UK equities across various sectors and market capitalizations. The fund generally invests 90% of its net assets in the stocks, real estate investment trusts, depositary receipts and preferred shares that comprise the index.

FKU’s top five holdings include Investec Plc (2.84%), SEGRO Plc (2.81%), 3i Group Plc (2.70%), Tritax Big Box REIT Plc (2.65%) and Future Plc (2.42%). The sector that receives the largest exposure in the fund includes financials, industrials, consumer discretionary, materials and consumer staples.

• iShare MSCI United Kingdom Small-Cap ETF (EWUS)

Issuer: BlackRock Financial Management

Expense Ratio: 0.59%

Net Assets: US $124.22 million

NAV: 43.82

Dividend Yield: 1.36%

YTD Daily Total Return: 12.75%

One-year total return: 40.61%

Floated on 25 January 2012, the iShare MSCI UK Small-cap ETF tracks MSCI UK Small Cap Index to offer exposure to small cap UK companies whose market caps represent the bottom 14% of the UK securities market. It puts in minimum 80% of its assets in the component securities in the designated index.  

The fund tries to adhere to a flexible policy by putting in money in both value and growth stocks. Its top five investments include Intermediate Capital Group Plc (1.65%), Rightmove Plc (1.63%), Electrocomponents Plc (1.46%), Dechra Pharmaceuticals Plc (1.44%) and Meggitt Plc (1.43%). The sector that receives the largest exposure in the fund includes financials, industrials, communication, health care, and consumer discretionary.

Also read: Invest in these 2 lithium and battery ETF’s to be part of EV boom

• SPDR S&P 500 ETF (SPY)

Issuer: State Street Global Advisors

Expense Ratio: 0.09%

Net Assets: US $374.03 billion

NAV: 458.30

Dividend Yield: 1.30%

YTD Daily Total Return: 25.97%

One-year total return: 40.90%

Floated on 22 January 1993, SPDR S&P 500 ETF tracks S&P 500 Index that consists of 500 large and mid cap US stocks. The fund’s top five investments include Microsoft Corporation (6.47%), Apple Inc (6.32%), Amazon.com Inc (4.02%), Tesla Inc (2.31%) and Alphabet Inc. Class A (2.25%).

Its weight of each stock in portfolio is same as weight of each stock in S&P 500 index. The sector that receives the largest exposure in the fund includes Information Technology, Consumer Discretionary, Healthcare, financials, and Communication Services. 

• iShare MSCI United Kingdom ETF (EWU)

Issuer: BlackRock Financial Management

Expense Ratio: 0.51%

Net Assets: US $3.6 billion

NAV: 33.99

Dividend Yield: 2.72%

YTD Daily Total Return: 15.18%

One-year total return: 29.88%

Incepted in 1996, iShare MSCI United Kingdom ETF tracks the MSCI UK Index to offer exposure to mid and large sized UK companies that mainly operate in UK. It puts in minimum 80% of its assets in the component securities in the designated index. 

The fund’s top five investments include Astrazeneca Plc (7.16%), Unilever Plc (5.50%), Diageo Plc (4.94%), HSBC Holdings Plc (4.81%) and Glaxosmithkline Plc (4.17%). The sector that receives the largest exposure in the fund includes Healthcare, Consumer Staples, Financials, Energy and Consumer Staples.

• Invesco CurrencyShares British Pound Sterling Trust (FXB)

Issuer: Invesco Investment Management Company  

Expense Ratio: 0.40%

Net Assets: $166.53 million

NAV: 132.90

Dividend Yield: 0.00%

YTD Daily Total Return: -1.62%

One-year total return: 11.21%

Incepted on 21 June 2021, Invesco CurrencyShares British Pound Sterling Trust that tracks the price in US dollar of the British Pound Sterling with aim to deliver retail and institutional investors with a simple, cost-effective means of gaining investment benefits same as those of holding British Pounds Sterling.

The sector that receives the largest exposure in the fund includes Basic Materials, Consumer Cyclical, Financial services, Real Estate and Consumer Defensive.

Also read: Can Crypto ETFs make their UK debut in 2022?