Cheap As Chips: These Are London’s Thriftiest Global Market ETFs

Cheap As Chips: These Are London’s Thriftiest Global Market ETFs
Sam Benstead via interactive investor

23 days ago8 mins

One of the biggest benefits of investing with exchange-traded funds (ETFs) is that they’re cheap. And that’s not by accident: ETF providers have been in fierce competition to offer investors the lowest price possible. But there are a ton of these funds out there that can give you exposure to global markets, so I decided to take a look at some of the cheapest ones listed on the London Stock Exchange and available through interactive investor to help you find the ones you want.

The UK market

The FTSE 100 is one of the most recognizable indexes in the world. As a result, investors can find several very cheap ETFs that track the index. For instance, both iShares Core FTSE 100 ETF and HSBC FTSE 100 ETF charge just 0.07%.

But as cheap as these ETFs are, they aren’t actually the cheapest way to access the UK market. The Lyxor Core UK Eq All Cap (DR) ETF charges just 0.04%, making it one of the cheapest ETFs available to UK investors.

The Lyxor fund doesn’t track the FTSE 100, but instead follows the slightly different Morningstar UK Index. Whereas the FTSE 100 houses the biggest 100 companies listed in the UK, the Morningstar index has more than 300, giving it big-cap and mid-cap exposure.

But the two indexes aren’t too different in practice. Both have similar top 10 weightings, and the sheer size of the biggest holdings in the Morningstar index effectively crowd out its additional, smaller holdings.

As for performance, the Lyxor ETF has provided a return of 23.6% over the past three years, compared to the iShares FTSE 100 ETF’s 27.9%.

The second cheapest in the lineup is the L&G UK Equity ETF, with a charge of just 0.05%. This ETF tracks the Solactive Core United Kingdom Large & Mid Cap Index, with just over 100 stocks. Now that’s a different index, sure, but it has provided a return that’s comparable to the other ETFs, at 27.5%.

But if you want to gain exposure to the UK while avoiding its biggest stocks, the lowest-fee fund is Amundi Prime UK Mid & Small Cap ETF, which has an expense ratio of just 0.05%.

The US market

Perhaps surprisingly, the cheapest way to gain passive exposure to US stocks isn’t through an ETF tracking the flagship S&P 500. Don’t get me wrong, those are cheap. But the Lyxor Core US Equity (DR) ETF is cheaper, with an expense ratio of just 0.04%. LCUD tracks the Morningstar US Index, which includes almost 700 stocks.

The next cheapest ETFs for the US market are the Invesco MSCI USA ETF and the Invesco S&P 500 ETF, with both charging just 0.05%. The first would give you exposure to the MSCI USA Index, and the second to the S&P 500.

Of course, there can be slight differences between the two indexes. The S&P 500 has strict rules compared to other indexes, with its stocks required to be profitable over a certain period. It’s also got a selection committee, which makes discretionary judgments about which stocks make the cut.

Also cheap are the Vanguard S&P 500 UCITS ETF and the iShares Core S&P 500 ETF, with both charging 0.07%.

The European market

Passive exposure to Europe isn’t straightforward, since there’s no singular definition of what “Europe” is.

That said, two of the cheapest ways to gain European exposure are the Invesco EURO STOXX 50 ETF and the HSBC EURO STOXX 50 ETF. Both charge just 0.05%.

They’d both give you exposure to the EURO STOXX 50 Index, which tracks the 50 heftiest stocks from 11 eurozone countries but mostly from France (41.1%) and Germany (25.6%). There are also stocks from the Netherlands (14%), Italy (8%), Spain (6.9%), and elsewhere.

Equally cheap is the Amundi IS Prime Europe ETF, which tracks the Solactive GBS Developed Markets Europe Large & Mid Cap Europe Index, and boasts an expense ratio of just 0.05%.

But there’s also the Lyxor Core STOXX Europe 600(DR) ETF, which charges 0.07% and follows the STOXX EUROPE 600 Index. This index is bigger than the EURO STOXX 50 and reaches beyond the eurozone’s markets, with about 20% of its assets in the UK and 15% in Switzerland.

The global market

If you’re looking for more global exposure, one of the cheapest options is the L&G Global Equity ETF, which charges 0.1% and tracks the Solactive Core Developed Markets Large and Mid Cap Index.

Slightly more expensive is the SPDR MSCI World ETF. It tracks the MSCI World Index, which consists of about 1,500 companies across 23 developed markets, for 0.12%. The Amundi MSCI World V ETF uses the same index and can be had for the same price. There’s also the Vanguard FTSE Dev World ETF. It charges 0.12% too and follows the very similar FTSE Developed World Index.

And if you’d like some mid-cap shares alongside your bigger-caps, you could consider the Amundi IS Prime Global ETF, with its very cheap expense ratio of 0.05%. It tracks the Solactive GBS Developed Markets Large & Mid Cap USD Index, which aims to represent the big-cap and mid-cap markets from 23 developed countries.

But if you want a global ETF that includes stocks from developed markets and emerging markets (EMs), you’re probably looking at some slightly more expensive ETFs. For example, there’s the iShares MSCI ACWI ETF, which charges 0.2%, and the Vanguard FTSE All-World UCITS ETF, which charges 0.22%.

The emerging markets

As you might have guessed from the previous paragraph, emerging market ETFs do tend to be a bit pricier. The index isn’t as frequently traded and it consists generally of less liquid stocks. But you can get exposure to these markets at a reasonable price.

The Amundi MSCI Emerging Markets II ETF, for example, is the cheapest I found, with an ongoing charge of 0.14%, which seems reasonable. There’s also the HSBC MSCI Emerg Mkts ETF, which charges 0.15%. Both track the MSCI Emerging Market Index, which includes around 1,400 big-cap and mid-cap companies.

For the same ongoing rate, you could go for a fund that invests in emerging market shares – but not Chinese ones. The Amundi MSCI Emerging Mkt Ex China ETF charges 0.15%. There’s also the iShares Core MSCI EM IMI ETF, which charges 0.18% and tracks the MSCI Emerging Markets Investable Market Index. In contrast to the other index, this one also includes small-cap stocks, giving it just over 3,000 constituents. And if you’d like an ESG-screened version of this same ETF for the same fee; there’s the iShares MSCI EM IMI ESG Scrn ETF.

The Chinese market

China has long been the number one dominant player in the emerging market index. But if that’s not enough China for you, there are several competitively priced China-only ETFs.

The cheapest is the Franklin FTSE China UCITS ETF with an ongoing charge of 0.19%. The ETF tracks the FTSE China 30/18 Capped Index, which is composed of around 900 Chinese companies. The biggest positions are in Tencent (12%) and Alibaba (8.5%).

The second cheapest China-focused ETF costs a heck of a lot more: the Amundi MSCI China ETF has an expense ratio of 0.29% and tracks the MSCI China Index.

The Asia-Pacific market

If you’re looking to invest more broadly across the Asia-Pacific region, the cheapest option is the L&G Asia Pacific ex-Japan Equity ETF, with an expense ratio of 0.1%. It tracks the Solactive Core Developed Markets Pacific ex-Japan Large & Mid Cap Index, so its biggest weighting is Australia, which accounts for just over 60% of its assets, followed by Hong Kong at about 15%.

The next cheapest on the list is the Vanguard FTSE Dev AsiaPac exJpn ETF for 0.15%. This one follows a slightly different index – the FTSE Developed Asia Pacific ex-Japan. Australia is still the biggest holding here, accounting for around 50% of assets, followed by Korean stocks, at about 30%.

The Japanese market

A lot of people think of active funds as a better way to invest in Japan. But Japan is one of the biggest and most efficient markets in the world, so you might want to consider passive exposure instead. If you do, there are several reasonably priced funds out there.

The cheapest is the Xtrackers Nikkei 225 ETF (LSE: XDJP), which charges just 0.09% and tracks the famous Nikkei 225 Index. But be aware: this index is price-weighted, not market-cap-weighted. And that means the stock’s trading price determines how much of the index it makes up. According to most experts, this method is inferior to a market-capitalization weighting, in which the proportion that each company represents in the index is the result of its share price multiplied by the number of shares in circulation.

If that’s a no-go, you could consider buying a market-cap-weighted ETF for just a tad more money. The L&G Japan Equity ETF charges 0.1% to track the Solactive Core Japan Large & Mid Cap Index, which is designed to give exposure to large- and mid-cap publicly traded Japanese companies, with some ESG screening.

There’s also the Lyxor Core MSCI Japan (DR) ETF, which tracks the MSCI Japan index for 0.12%.



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