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Top 10 Most Popular ETFs

A list of the 10 most viewed ETFs on Morningstar.co.uk, plus some insight into why these ETFs were so popular

Alanna Petroff 17 January, 2013 | 8:00AM

It’s well-known that investors use exchange-traded funds (ETF) and exchange-traded products (ETP) to achieve various investment goals. Some investors are looking to use ETFs to diversify their holdings; some are looking to cut down on investment charges, and other are looking to invest in difficult-to-access assets such as commodities.

Below is a list of the 10 most viewed ETFs on Morningstar.co.uk over the past year, plus some context and insight from Morningstar’s European ETF analysts about the appeal of these particular ETFs.

#1 SPDR Gold Shares Trust (USD) (GLD)
#2 SPDR S&P 500 ETF (USD) (SPY)
#3 iShares Markit iBoxx GBP Corporate Bond (GBP) (SLXX)
#4 ETFS Physical Gold ETC (GBP) (PHGP)
#5 ETFS Physical Gold ETC (USD) (PHAU)
#6 Source Physical Gold P-ETC (USD) (SGLD)
#7 iShares FTSE UK Dividend Plus Inc (IE) (GBP) (IUKD)
#8 iShares Markit iBoxx Euro High Yield Bond (IE) (GBP) (SHYG)
#9 ETFS Gold Bullion Securities ETC (USD) (GBS)
#10  ETFS Agriculture DJ-UBSCI ETC (USD) (AIGA)

Popular ETFs: Explanation & Analysis

1. SPDR Gold Shares Trust (USD) (GLD)

“Gold wrapped up its 12th straight year of price increases in 2012 with an 8.3% gain, so it’s not surprising that investors are considering accessing the gold market through this popular ETF,” said Hortense Bioy, director of passive fund research at Morningstar in Europe. “Investors continued to seek refuge in the yellow metal this past year as central banks extended their easy-money policies and concerns persisted over global economic growth.”

However, Bioy notes that this ETF is not necessarily suitable for UK investors.

“It’s important to note that with about $71 billion in assets, the SPDR Gold Shares Trust (USD) is the world’s largest gold ETF, but it is a US-domiciled product with no UK reporting status. It is therefore probably not the most tax-efficient option for UK investors. It is also not ISA-eligible.”

A more suitable gold ETF for UK investors might be the ETFS Physical Gold ETC, said Bioy. (It is listed below in the #4 and #5 spot in terms of popularity.) The Source Physical Gold P-ETC is another suitable gold ETF that is traded in London, said Bioy. (It is listed below in the #6 spot in terms of popularity.)

2. SPDR S&P 500 ETF (USD) (SPY)

“With assets of $130 billion, this is the biggest ETF on the planet, which helps to explain the interest it generates,” said Morningstar ETF analyst Alastair Kellett. “Moreover, last year was a big year for US equities, with continued central bank money-printing and the start of a long-awaited recovery in the housing sector. This helped the fund post a gain of 15.84% for the year.”

However, it’s again important to note that this ETF is also domiciled in the US, it has no UK reporting status and it is not ISA-eligible, said Bioy. This may not be a suitable option for UK investors, said Bioy. 

3. iShares Markit iBoxx GBP Corporate Bond (GBP) (SLXX)

“The iShares Markit iBoxx GBP Corporate Bond ETF offers investors exposure to the GBP-denominated corporate bond market, both from financial and non-financial corporations,” explained Morningstar’s senior ETF analyst Jose Garcia-Zarate

Corporate bonds have become the default choice for many income-seeking investors tired of the historically low yields offered by the likes of UK government bonds,” he said. “Changes in perceptions vis-à-vis risk have also played a key role in allowing the re-allocation of investment flows, with big UK corporations now generally seen as sporting healthier balance sheets than the debt-burdened UK government. This particular ETF produced attractive returns of 12.7% in 2012 and this success has prompted iShares to propose a change to the broader benchmark in 2013 to facilitate more effective index tracking.”

4. ETFS Physical Gold ETC (GBP) (PHGP)

This ETFS product is the largest gold ETF in Europe with $8.5 billion in assets. It’s traded in London, it has UK reporting status and it is considered to be a more suitable option for UK investors compared to the US-domiciled SPDR Gold Shares Trust (USD), said Bioy.

This ETF is also traded in pound sterling, which may be useful for UK-based investors. However, Bioy points out that "because it is traded in sterling while spot gold prices are denominated in US dollars, investors should be aware that the returns delivered by this ETF will take into account currency fluctuations. The appreciation of the pound against the US dollar last year meant that this ETF returned 0.65% while its US version (listed below in the #5 spot) returned 5.27%."

5. ETFS Physical Gold ETC (USD) (PHAU)

This is the same ETF as the above ETFS Physical Gold ETF (GBP), however, this ETF is traded in US dollars instead of sterling.

6. Source Physical Gold P-ETC (USD) (SGLD)

This is considered to be a more suitable option for UK investors compared to the US-domiciled SPDR Gold Shares Trust (USD). It is traded in US dollars.

7. iShares FTSE UK Dividend Plus Inc (IE) (GBP) (IUKD)

This ETF offers exposure to the 50 highest yielding UK stocks.

“In this low-interest rate environment, investors continue to hunt for income. This ETF seems to fit the bill; it  pays quarterly distributions that currently amount to a 4.85% annual yield. By contrast, a 10-year UK Gilt yields less than 2% per annum,” explained Kellett.

8. iShares Markit iBoxx Euro High Yield Bond (IE) (GBP) (SHYG)

“This ETF was one of the most successful ETFs of 2012 in terms of inflows,” said Garcia-Zarate.

“This iShares fund has met the needs of those investors seeking that bit of extra yield, both versus investment-grade corporate and government bonds. The rush for non-investment grade corporate bonds (i.e. high yield) is the ultimate expression of how investors’ perceptions of risk have changed during the current crisis. Amongst other factors, this has been facilitated by historically low default rates in the corporate world,” he said.

However, this ETF isn’t suitable for everyone and investors should proceed with caution.

“This ETF tracks a EUR-denominated index and so there will always be an element of foreign exchange risk for sterling-based investors,” said Garcia-Zarate.

9. ETFS Gold Bullion Securities ETC (USD) (GBS)

This particular London-traded gold ETF is backed by physical gold and it tracks movements in the spot price of the yellow metal, less fees. The security is benchmarked to the P.M. London Gold Fixing.

"The key difference between this product and the previously mentioned ETFS Physical Gold ETC is that this one allows investors to redeem their securities for physical gold, which is not the case for the ETFS Physical Gold ETC," said Bioy.

10. ETFS Agriculture DJ-UBSCI ETC (USD) (AIGA)

This London-traded ETF “offers exposure to agricultural commodities futures and is most suitable for use as a tactical tool to speculate on agricultural commodity prices,” said Morningstar ETF analyst Lee Davidson. “In recent years, agricultural commodities have become popular investment options due to burgeoning demand stemming from population growth. The long-term prospects for agricultural commodities are compelling, but short-run volatility could dissuade investors.”

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About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.