AJ Bell Favourite funds update – new ETFs added

On 28 April 2000, the first ETF – which tracked the FTSE 100 – listed on the London Stock Exchange. Unlike an active fund, which aims to outperform a financial index such as the FTSE 100, an ETF (or tracker) aims to replicate an index’s return.

It’s proved a popular formula. Since that debut 20 years ago, ETFs have snowballed in number. By the end of March 2020, you could choose between 1,800 ETFs on European stock exchanges, totalling $900bn of assets. 2019 alone saw 65 new ETFs, and the amount invested in ETFs grow by $250bn.

As new ETFs come to the market, we look to review our AJ Bell Favourite Funds list accordingly. New ETFs are often cheaper than existing ones, or include extra features such as a different way of constructing the index – incorporating issues such as responsible investing – or have additional liquidity controls. As such, our previous selections may no longer represent the ‘best in-class’ products to invest passively in different assets – such as UK shares, US shares or international bonds.

When we make a change to the list, it is usually because of a new product that we believe represents better value or has a better-designed index. It also needs to be managed by a reputable fund manager with a good record of managing tracker products.

It is, however, important to note here that when we remove a tracker fund from our list, it isn’t necessarily because we see any issues with it. When moving from one product to another, you incur costs in the form of dealing charges and the buy-sell spreads of the funds – costs you need to consider before changing your current tracker investments.

As well as adding new ETFs that track traditional indices, we have also introduced our first specialist ETF to the list – the iShares Automation and Robotics ETF. In the ETF market, we’ve seen significant growth in novel areas, including ETFs that aim to benefit from long term themes such as robotics or cyber security. These products are often riskier as standalone investments, but may be suitable as part of an overall portfolio. Over time we would expect to further expand this part of the service.

Below are the ETFs we’ve added to the list, with a brief explanation of our thinking:

• Lyxor Core Morningstar UK ETF – it offers a broad coverage of the UK share market with a low ongoing charge
• Lyxor Core MSCI Japan ETF – covers the large and mid-cap Japanese equity market, with one of the lowest charges in that market
• Vanguard FTSE Developed Asia Pacific ex Japan ETF – includes Korea within its fund, allowing for a greater number of holdings in the fund compared to other trackers covering this region
• Lyxor Core Actuaries UK Gilts Inflation-Linked ETF – a low-cost ETF in the UK offering this exposure
• iShares Global Aggregate Bond ETF – offers a mix of global government and corporate bonds, giving an investor broad global bond exposure with a single ETF
• iShares MSCI Target UK Real Estate ETF – an innovative fund that carries less volatility by mixing property shares with inflation-linked bonds
• iShares Automation & Robotics ETF – a relevant theme for investors seeking high-growth, high-risk technology focused investments

And we are removing the below ETFs to ensure we offer a focused choice within each asset type:

• SPDR FTSE UK All Share ETF
• Vanguard FTSE Japan ETF
• iShares Core MSCI Pacific ex-Japan ETF
• Vanguard UK Inflation-linked Gilt Index Fund
• iShares Global Government Bond ETF
• iShares Overseas Government Bond Index Fund
• iShares UK Property ETF

Find out more about our Favourite funds list.