What Is The Best FTSE 100 ETF
We look at your ETF options if you are looking to invest in the FTSE 100
- What is a FTSE 100 exchange-traded fund (ETF)? »
- 3 Top ETF FTSE 100 Picks »
- How to buy the FTSE 100 using ETFs »
- How do investment platform costs compare when investing in a FTSE 100 ETF? »
What is a FTSE 100 exchange traded fund (ETF)?
Exchange-traded funds (ETFs) are investments that look to mirror the performance of a particular market index.
They are passive investments and aim to replicate the movement of an index and deliver returns closely matched to the Index being tracked.
In an ETF that tracks the FTSE 100, returns will reflect the performance of the top 100 UK firms by capitalisation that make up the Index. Current constituents of the FTSE 100 include companies such as AstraZeneca, BP, Rolls Royce, Diageo and Unilever.
How do they work?
Exchange-Traded Funds work by:
- Full Replication – physically buying shares of the 100 companies that make up the FTSE 100 or by
- Partial Replication – using more complex investments to replicate the movement in the Index.
Some tracker funds attempt to fully replicate the Index by holding all of the constituent shares in approximately the same proportion as their weighting in the Index.
Other tracker funds use an index sampling process holding a representative sample of shares that approximate the full Index mirroring key risk factors and other characteristics.
Tracking error measures the volatility of the return difference between the fund and the FTSE 100 index.
It is calculated as the standard deviation of the tracking difference between the tracker fund and the Index (gross of fees for the trailing 36-month period, or since the fund’s inception if it does not have 36 months of performance history).
A low tracking error means an index tracker fund is following the performance of the FTSE 100 Index closely. The tracking error gives you a measure of how closely the fund is replicating the FTSE 100.
With index tracker funds that are generally passively managed, the lower the tracking error, the better.
3 Top FTSE 100 ETF Fund Picks
Each of the funds listed above employs a “passive” investment strategy designed to replicate the performance of the FTSE 100 index.
According to Interactive Investor, the second most popular FTSE 100 ETF fund bought by investors in the first quarter of 2022 was the iShares Core FTSE 100 ETF.
Launched in 2000, this index tracker fund replicates the FTSE 100 and has a low ongoing charge of 0.07%.
Managed by BlackRock, this is a large fund with over £10.46 billion (ISF) invested.
iShares run two versions of the fund: Accumulated Fund (stock code: CUKX), where dividends are accumulated.
Distribution Fund (stock code: ISF) where dividends are paid out. Dividend income is paid quarterly (Income yield as of May 2022 was 3.43%). If the fund is held in an ISA, this income is not subject to income tax*.
According to Interactive Investor, the Vanguard FTSE 100 ETF was the 5th most popular ETF fund purchased through its platform in the first quarter of 2022.
Launched in 2012, this index tracker fund replicates the FTSE 100 Index and has a low ongoing charge of 0.09%.
Managed by Vanguard, the fund has £4.4 billion (VUKG) invested at the time of writing.
Vanguard runs two versions of the fund:
Accumulated fund (stock code: VUKG) where dividends are accumulated.
Distribution Fund (stock code: VUKE) where dividends are paid out. Dividend income is paid quarterly (Income yield as of May 2022 was 3.41%). If the fund is held in an ISA, this income is not subject to income tax*.
3. Wisdom Tree FTSE 100 3x Daily Leveraged
According to Interactive Investor, the Wisdom Tree FTSE 100 3x Daily Lvrgd ETP was the 10th most popular ETF fund purchased through its platform in the first 3 months of 2022.
The objective of this product is to track the FTSE 100 Daily Super Leveraged RT TR index, or the “Index”, to provide three times the daily performance of the FTSE 100 Net Dividend TR index (the “Benchmark”), adjusted for the costs associated with maintaining a leveraged position in stocks.
For example, if the Benchmark rises 1% over a day, the ETP will increase 3%. On the other hand, if the Benchmark falls by 1% over a day, then the ETP will fall by 3%. Fees and funding costs are excluded in both cases.
How do investment platform costs compare when investing in a FTSE 100 ETF?
Today’s investor in 2021 has a lot of investment platform options to choose from.
“One of the key considerations is cost… However picking the “cheapest” is not as simple as it sounds, as each platform has its own costing model which often makes it difficult to compare like for like”.
Below we have outlined what you can expect to pay in charges for 4 of the UK’s most popular investment platforms based on investing in a low-cost tracker fund (iShares Core FTSE 100 UCITS ETF).
As you can see below, the amount you invest will determine the platform’s cost-effectiveness. For more considerable sums, Interactive Investor with a flat fee model offers value for money, while AJ Bell is worth considering for sums under £100k.
|Platform||Annual Platform Fee||iShares OCF
|Interactive Investor||£9.99 pm flat fee||0.7%||£126.88||£154.88||£189.88|
|Hargreaves Lansdown||0.45% up to £249,999, reducing
to 0.25% from £250,000 to £1m,
reducing to 0.10% from £1m to £2m.
No fee for assets over £2m
|AJ Bell||0.25% on the first £250K||0.7%||£32||£128||£320|
|Fidelity||0.35% from £7,500 to £249,999,
reducing to 0.2% from £250,000
to £1m. No fee for assets over £1m
As you can see, the right platform for you will depend on how much you are investing.
Other considerations include:
- How easy is the platform to use, and what tools and research are on offer
- What fund discounts are there? different platforms have negotiated additional discounts on funds
- Customer reviews – helpful in understanding the strengths and weaknesses of platform providers
- Level of customer service provided
Trading or investing in the FTSE 100 – What is the difference?
Trading the FTSE 100:
“If you are looking to trade the FTSE to make short term profits you can use products such as CFDs and spread bets to speculate on a FTSE 100 ETF share’s price increasing or decreasing without having to take direct ownership of the shares themselves”.
CFDs (Contracts For Difference) and spread betting are leveraged products, which means you can gain full exposure to the FTSE 100 through an ETF while only putting down a small deposit. While this magnifies possible profits, it does the same for losses.
Short-term traders like CFDs and spread bets because profits and losses are realised instantly and trades can be opened and closed more quickly.
However, this doesn’t mean you can’t use them for longer-term positions too.
You’d need to consider the costs involved in maintaining a position – such as overnight funding – and the bet duration, as spread bets have fixed terms.
They also enable you to buy and sell shares online without owning the underlying asset. This has tax benefits and means you can trade both rising and falling markets (Tax laws are subject to change).
Investing in the FTSE 100:
As an investor, you will be looking to invest in the companies that make up the FTSE 100 in the hope that, over time, the Companies that make up the Index will grow & generate good profits.
You typically will be investing for the longer term, e.g. 5 years or more is expected.
When you buy shares, you become a part-owner of that Company and gain shareholder rights, including any income paid as dividends.
Profits you make on share trading capital gains and dividends earned may be subject to tax at your rate. Taxation can be mitigated if you trade within an ISA or Self Invested Personal Pension account.
How To Buy The FTSE 100 Using ETFs
- Select a share platform – See below our top 3 platform picks
- Open your share account – To do this, you will need your bank details and national insurance number
- Fund your account – You will need to fund your a/c with a debit or credit card or bank transfer
- Search for the ETF using the stock code – Type the stock code into the search box
- Check out the latest info and price for the selected ETF – Some platforms offer free research and analysis
- Buy the ETF – Nice and easy!
Our view: The next generation of online trading platforms means you can buy ETF funds in as little as 10 minutes! See our top picks for buying ETFs below:
Capital is at risk.
- 0% commission on stocks
- Free account
- Inactivity fee after 12 months
Capital is at risk.
- 1 free trade per month
- Fixed fee platform – £9.99 pm
- No inactivity fees
Invest in the FTSE 100 via an ETF
- Fixed fee platform – £5.95 to £11.95 per trade
- Free to hold shares (ETFs are shares)
- No inactivity fees
Important Risk Information:
No news, feature article or comment should be seen as a personal investment recommendation. Before deciding to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are unsure of the suitability of a specific product, both in respect of its objectives and risk profile, you should seek independent financial advice.
The value of shares, ETFs and ETCs bought through a share dealing account, stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 67%-75% of retail investor accounts lose money when trading CFDs. It would be best to consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.
Tax treatment of ISAs depends on your individual circumstances and is based on current law, which may be subject to change in the future. ISA transfer charges may apply; please check with your provider.