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Top 10 ETF Purchases for ISA Investors

LOW COST FUNDS: Since the New ISA allowance was introduced at the beginning of July, investors have been choosing ETFs that invest in UK companies for their wrapper

Emma Wall 1 August, 2014 | 9:44AM

New ISA investors have been able to invest up to £15,000 in the tax efficient wrapper since July 1. The raised allowance and more flexible investing rules have meant that trading platforms have seen a boom in business. Fidelity saw ISA sales nearly double in just one week after the NISA launch.

The NISA replaced the ISA, which in turn had replaced another savings vehicle, the PEP. When PEP schemes were first introduced the annual tax-free allowance was just £2,400 – significantly smaller than today’s allowance.

Below, we reveal the top 10 ETF purchases with ISA investors on investment platform Hargreaves Lansdown since the New ISA limit was introduced – and what our Morningstar passive funds analyst team thinks of each offering.

iShares FTSE UK Dividend Plus (IUKD)

The three-star fund, which offers exposure to the 50 highest yielding UK stocks, is a suitable tool to implement different strategies, says Morningstar analyst Hortense Bioy. This broadly diversified, large and mid cap-focused fund could easily serve as an alternative core UK equity holding for investors seeking a regular income stream. It could also be considered as a satellite holding.

iShares FTSE 100 (ISF)

This three-star fund provides broad exposure to large capitalisation UK equities and can be used as a core holding, says Bioy. However, investors should carefully examine the index's composition. With a 20-22% weighting, financials is the top sector represented in the index.

ETFS Metal Sector Physical Gold (PHAU)

Gold is traditionally sought after as a store of value in times of severe economic dislocation, an insurance policy against financial Armageddon, says Morningstar’s Ben Johnson. Its historically low- to negative- correlations with most broad asset classes indicate that gold might be a worthwhile investment for a small portion of an investor’s portfolio.

Vanguard FTSE 100 UCITS ETF (VUKE)

The fund provides broad exposure to large capitalisation UK equities and can be used as a core holding, says Bioy.

iShares FTSE 250 (MIDD)

By providing broad exposure to UK mid-cap stocks, the fund can serve as a tool for asset allocators looking to control their market cap and style exposures.

iShares II FTSE MIB (IMIB)

This two-star fund provides broad exposure to Italian large-cap equities and can be used as a core building block for those looking to build a diversified Italian-centric portfolio. However, investors should be aware that the top four constituents account for about half of the total value of the FTSE MIB index.

Vanguard FTSE World High Dividend Yield (VHYL)

This fund seeks to track the performance of the FTSE All-World High Dividend Yield Index. Morningstar analysts do not currently cover this ETF.

Vanguard S&P 500 ETF USD (VUSA)

Morningstar analyst Caroline Gutman says this fund is best suited as a core building block for a portfolio, providing broad exposure to many of the largest companies in the world’s biggest economy.

iShares S&P 500 (IDUS)

This is the only five-star ETF on the top 10 list, meaning it has had stellar performance - outperforming its category peers over the past three years. Over the last 15 years, the S&P 500 has had an annualised volatility of 15.5%, versus 19.4% for the MSCI Europe and 23.7% for the MSCI Emerging Markets.

Vanguard FTSE Emerging Markets ETF (VFEM)

This fund seeks to track the performance of the FTSE Emerging Index. Morningstar analyst do not currently cover this ETF.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
ETFS Physical Gold119.61 USD-0.94-
iShares FTSE 100 (Inc)738.20 GBX0.71
iShares FTSE 2501,890.70 GBX0.06
iShares FTSE MIB (Inc) GBP1,126.00 GBX1.37
iShares S&P 500 (Inc)24.33 USD0.26
iShares UK Dividend937.23 GBX0.48
Vanguard FTSE 100 ETF33.15 GBP0.64
Vanguard FTSE All-Wd Hi Div Yld ETF (IE) GBP42.63 GBP0.66
Vanguard FTSE Emerging Markets ETF GBP43.27 GBP0.77
Vanguard S&P 500 ETF GBP36.44 GBP0.25
About Author Emma Wall

Emma Wall  is Web Editor for Morningstar.co.uk.