Exchange Traded Funds (ETFs) Regular investment insights from John Cotter, Vice President at Barclays Stockbrokers. In this edition, John discusses Exchange Traded Funds (ETFs)
Cotter's Corner - Exchange Traded Funds (ETFs)

Exchange Traded Funds

John Cotter tells us why iShares merit serious consideration by many different types of investor.

Published 5 December 2008

 

iShares from BlackRock, are a type of exchange traded funds and in basic terms are very cheap effective trackers of indices and sectors. They are cheap in many ways:

  • The Total Expense ratios (annual charges) range from 0.15% to 0.85%
  • There are no front end fees
  • No stamp duty is charged on purchases
  • They offer wafer thin (almost invisible) bid/offer spreads (see intraday prices on summary page)
They are effective as they deliver a minimal difference between the funds return and that of the index tracked. This difference in return averages less than 0.5% per annum – you can use the tracking error chart to see just how closely individual iShares track their index.
 
performance chart
 

You could claim therefore they offer the best of both worlds - the diversification of a Fund and the tradability of a share - but in what ways could you use them to improve your investment strategy?

 

1. You could use them as core investments – by adding broad based iShares i.e. iShares FTSE 100 (ISF) or iShares S&P 500 (IUSA) to an existing portfolio you can achieve instant diversification to a whole index in one trade.

2. You could use them to trade an index - these funds lend themselves to this type of investment because they have the narrowest of bid/offer spreads and are priced continuously so you can buy or sell them immediately. Therefore when trading them you can take advantage of our advanced deal mechanisms and set limits, stops and trailing stop orders…something you cannot do with other types of Funds.

3. You can use them to achieve global diversification - they offer you a simple way of accessing overseas markets. In one trade you can invest in a whole country index….and some of these are not easily accessible to the normal investor. Examples include Brazil (IBZL) Korea (IKOR) China (FXC)

4. You can use them to produce an income - some of the iShares are targeted to produce an income which may be attractive to you especially in tax efficient ISA or SIPP accounts though you need to bear in mind that, like the capital values, the income produced can go down as well as up. Good examples across the different asset classes would include: Gilts - iShares FTSE UK All Stocks Gilt (IGLT); Corporate Bonds - iShares GBP Corporate Bond (SLXX); and in Equities - iShares FTSE UK Dividend Plus (IUKD)

You should remember though that ETFs may not be for everyone. They closely track the performance of an index and as such their value can go down as well as up and you may get back less then you invested. Some of the indices tracked may reflect only the capital value of the investments included and not dividend income.

Despite these differences they all have certain things in common. They all offer a cost effective and simple way of achieving diversification.

You can view the complete list of LSE listed iShares here. These can all be traded online in Sterling.
 

For full details of the funds including past performance, value, cost, number of holdings, top 10 holdings and income payment dates click on the iShares of your choice and then on the summary page click "Barclays View"…I hope you find them as interesting and useful as I do!.

iShares are the worlds leading Exchange Traded funds designed by BlackRock. Despite the rapid growth of iShares over recent years they still remain, to the majority of our customers one of the best kept stock market secrets. There are over 300 in total and over 60 of these are quoted on the London Stock exchange and therefore they are tradable online in your MarketMaster®, Investment ISA or SIPP accounts.

 
  • Find out more about iShares
  •  
    Page last updated: 10 November 2008  

    Barclays offers wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiary companies. Barclays Stockbrokers is a trading name of Barclays Bank PLC (Registered No. 1026167 Registered VAT No. 243 8522 62) which is a member of the London Stock Exchange and ISDX. Barclays Bank PLC is registered in England and authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The registered address is 1 Churchill Place, London E14 5HP.

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