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The difference between two popular FTSE 100 ETFs
Readers often ask how they should choose between different exchange-traded funds covering the same underlying market so let’s look at two products tracking the UK’s flagship stock market index, the FTSE 100.
iShares Core FTSE 100 ETF (ISF) is the largest exchange-traded fund of this kind, with net assets approaching £10 billion. Vanguard FTSE 100 (VUKE) is the second biggest at closer to £4 billion. Both track the same index but there are a few differences.
The first one is cost. A key reason why people buy ETFs is to get low-cost exposure to the markets. While an active fund might cost you 1% a year or more in fees, most ETFs have significantly lower ongoing charges.
The iShares product has an ongoing charge of 0.07%, while Vanguard’s is 0.09%. Relatively small differences in costs can add up to a much larger differences over time.
Most FTSE 100 ETFs, including these two, directly invest in the constituents of the index to physically mirror its performance. But some ETFs are more complex and use contracts with investment banks to replicate an index rather than buying the underlying assets and are sometimes called swap-based ETFs.
HOW CLOSELY DO THEY HUG THE BENCHMARK?
‘Tracking difference’ measures how far the performance of an ETF deviates from its benchmark. As ETFs are products constructed to mirror an index, this is an important consideration.
The tracking difference is calculated by subtracting the performance of the ETF from the performance of the index.
Between 30 June 2020 and 30 June 2021, the FTSE 100 delivered a return of 17.96%, while the iShares vehicle returned 17.88% and the Vanguard one 17.87%.
Using Refinitiv data to compare performance between the two since the inception of the Vanguard FTSE 100 product on 22 May 2012, the iShares product is up 30.1% while its Vanguard counterpart is up 24.9%.
Vanguard has lost out from having higher costs and perhaps not having the same level of efficiencies enjoyed by iShares and its larger scale of assets.
On this basis, and given its longer track record, it is not surprising that a higher volume of investors opted to track the FTSE 100 using the iShares ETF.
Do you want income paid out or reinvested?
Just as with traditional funds, ETFs have ‘Inc’ versions which pay out the income they receive from underlying holdings and ‘Acc’ ones which effectively reinvest income.
The Inc version of the iShares FTSE 100 ETF has the code ISF while the Acc version is CUKX.
For Vanguard’s FTSE 100 ETF the Inc version is VUKE while the Acc one is VUKG.
Some ETFs replace the term ‘Inc’ with ‘Dist’ in the product name, meaning ‘Distributing’ – namely paying dividends in cash.