Why this might be one of the best ETFs for investing in UK shares

I’m looking at why a FTSE All-Share ETF could be one of my best ways of investing in the UK market over the long term.

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Key points

  • This ETF tracks nearly the entire UK stock market
  • It’s skewed towards larger companies like those in the FTSE 100 
  • If the UK economy continues to do well, this fund is likely to perform strongly

I’m a great believer in taking a long-term outlook to investing and am generally optimistic about the UK stock market. Though the flagship Footsie dominates the press, I’m now considering the FTSE All-Share. This consists of the FTSE 100, FTSE 250, and FTSE Small Cap. This is a much broader range of companies, including around 98% of the UK stock market. I think that a fund tracking this index could be one of the best exchange-traded funds (ETFs) for my portfolio in the long run.

There are a lot of funds in this sector, but I’m looking at SPDR FTSE All-Share ETF (LSE:FTAL). This is large in size with over £600m of assets, has a relatively low management charge of 0.20%, and good trading volume. Unusually for me, this is an accumulation fund rather than a dividend-paying one. As this investment is definitely a long-term play for me, it makes sense to take the accumulation option. This automatically invests dividends rather than distributing them. Since I would only re-invest the dividends anyway, this is the cheaper option, as it would cost me fees every time I re-invested them myself.

Still one of the best ETFs for tracking the UK market?

Over 12 months, this fund’s price has increased by around 16%, but year-to-date it has fallen by just over 1%. However, it’s the long-term performance I’m most interested in. Over five years, an increase of almost 25% has been notched up. Over 10 years, it’s closer to 100%.

Of course, in investing, nothing is certain and there are some drawbacks. Firstly, FTAL only tracks UK companies. Although many of the firms will derive some of their earnings from overseas, this fund can’t really be described as geographically diverse. Over the last 10 years, the US stock market has had a fantastic run which this ETF would have missed out on.

Second, by buying an index fund, I can only earn the returns of the index. I think that by picking individual stocks I might be able to outperform it. Third, the larger companies, like those in the FTSE 100, make up a bigger proportion of the ETF. This means those firms have more of an impact on the overall performance of the fund.

However, I’m still a fan. The larger firms are in sectors like banking and traditional energy which could have a great 2022 if interest rates and the oil price continues to rise. Also, it contains around 600 shares, which provides a huge amount of diversification across company size and sectors. Even if one or two of the companies fail, this shouldn’t have a big impact on the fund as a whole. Moreover, I remain bullish on the UK economy in general, which could mean more upside potential to the SPDR FTSE All-Share ETF.

On balance, I think this is one of the best ETFs for investing in UK shares and am happy to consider adding it to my holdings as part of a balanced portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Niki Jerath has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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