ETFs Increasingly Popular for Exposure to the UK Market

Retail investors are embracing low-cost, exchange-traded funds as tools for investing in UK stocks and shares

Rosie Murray-West 24 April, 2014 | 4:27PM
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British investors are using low-cost, exchange-traded funds to gain exposure to UK companies and markets, as the products become more mainstream.

Figures from Barclays Stockbrokers released this month show that 70% of the ETFs bought by its clients in their ISAs in the first quarter of 2014 had a UK focus, with the bulk of customers focussing on the FTSE 100.

Indeed, Morningstar.co.uk users have most recently been researching ETFs that offer exposure to the UK and US markets, with a specific focus on dividend-paying British companies.

"Both our ISA and ETF clients are placing increased emphasis on equity markets, particularly the UK, and are reducing their interest in income-focused ETFs, as global economies return to growth," said Chris Stevenson of Barclays.

The Barclays figures come after Blackrock's most recent ETF Landscape report showed global inflows of $12.9 billion into exchange-traded products in March, indicating continued interest in the products from both institutional and retail investors worldwide.

While the bulk of these inflows were in the US, the market in the UK is growing too.

Neil Jamieson, head of sales for UK and Ireland at ETF Securities, said that these low-cost products are becoming more mainstream as UK retail investors realise that they can get exposure to commodities and indices that they would otherwise struggle to find exposure to, or which would be very expensive to invest in in any other way.

"The London Stock Exchange statistics show that the number of trades of exchange-traded products has grown enormously," he said. He added that financial planners had been keen to attend education seminars on the products in order to offer them to their clients. "There is increased appetite and interest," he said.

"There is growing awareness and growing interest in these products from retail clients," he said, adding that the Retail Distribution Review, which has helped to make the pricing of funds more transparent, may have encouraged retail investors to look at these low-cost options. "It certainly hasn’t hindered things," he added.

As well as UK companies, retail investors are using the products to take positions on currencies, gold and even coffee. Coffee prices have hit their highest point in more than two years this month, and exchange-traded products can be used to track the price of the beans, which has risen due to fears that drought in Brazil could lead to global shortages.

"People can use the fund to hedge against the rising price of their morning coffee in Caffe Nero or Starbucks," Mr Jameson said. Other popular funds have included those tracking the price of gold – spurred on by uncertainty in the Ukraine and Crimea.

Physical gold ETFs were in fifth and tenth places in the top ten ETF purchases for Barclays clients, as well, with the stockbrokers says that investors are taking advantage of the opportunities provided by the ongoing gold price volatility.

The Barclays data suggest that its clients are also using ETFs to diversify globally. Equity market ETFs providing exposure to the US, Japan and Turkey rounded out its top ten funds for the first quarter.

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.

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Rosie Murray-West

Rosie Murray-West  is a financial journalist writing for Morningstar.co.uk