We look at the main ETF providers in the UK and what they offer.
If you're not familiar with exchange traded funds (ETFs) then you can think of them as a cross between ordinary index tracking funds and shares.
Like the index trackers managed by the likes of Legal & General (LSE: LGEN) and Fidelity, they aim to match the performance of a stock market index like the FTSE 100. However, they also resemble shares in that they are traded on the stock exchange and their prices are updated continuously throughout the trading day.
ETFs are a cheap way to get some diversity in your portfolio, being on average less than half the cost of the price of old-fashioned index trackers and as little as a fifth the cost of actively managed funds. Lower costs = more money for you and me!
The flexibility and low cost of ETFs is making them increasingly popular. BlackRock latest ETF report states that global ETF assets have reached an all-time high of $982bn (£604bn) and more than doubled over the last five years. The number of ETFs available around the world is up four-fold over the same period to 1,900.
Net global sales of ETFs have recently outpaced other mutual funds by seven times. According to Strategic Insight, in the first nine months of 2009, £58bn were sold compared to just £8bn for mutual funds.
How does the UK fit in?
The London Stock Exchange saw 34 new ETFs in 2008 and 42 in 2009 (up until November). This puts us in fourth place in the global league table for primary ETF listings:
| Country | Total held
in ETFs
£bn | Total
listed
ETFs |
|---|
| US | 409 | 753 |
| Germany | 57 | 329 |
| France | 32 | 223 |
| UK | 28 | 142 |
Just four providers provide almost all of the UK's ETFs. These are: iShares, DB-X Trackers, Lyxor and ETF Securities.
What's available?
I counted 13 ETFs on the London Stock Exchange that track the FTSE 100, FTSE 250 or FTSE All Share, including one that allows you to short the market (i.e. betting that it will fall in value). There are ten for big European companies, including one short.
19 ETFs capitalise on a basket of emerging markets (whether it was BRIC, EMEA or what have you), and another 15 track individual emerging-market countries. The US market has 10 ETFs following it while Japan has 4.
Income investors can choose from 4 dividend ETFs and 21 that invest in bonds. 9 natural resources are represented, as you are able to invest in producers of gold, oil, gas, coal, steel, agriculture, water, timber and nuclear power. There are at least 6 Shariah ETFs, which invest in Shariah-compliant companies.
There were 22 global funds, with 6 on the short side. It's on the global scale that we get most industry-specific choice, with food and drink, healthcare, industrial goods, insurance, infrastructure, utilities, technology, telecoms and property represented.
As you may have seen from our regular ETF articles, there are a number of obvious gaps in what's currently available. For example, very few industries are represented on a national scale, and property ETFs are pretty thin on the ground too. Also, particularly when you stray away from ETFs tracking major indices like the FTSE 100, it's worth checking how large each fund is in terms of assets under management, as smaller funds may not be as easily tradable.
Whilst ETFs are giving us many low-cost options, they still have a lot of unexplored potential. BlackRock says there are 820 new ETFs in the pipeline, but don't expect too many gaps to be filled in this year. About 90% of these new ETFs are planned for the US and most of the rest are not getting a primary listing on the LSE.
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