There’s a lot to like about the UK stock market. For a long time, it’s been known as a good place to look for dividend income. And with mature industries like banks, oil and gas, and tobacco that usually pay bigger dividends compared to their share prices, this shouldn’t come as a surprise.
But there are plenty of other opportunities too. From big consumer goods companies selling their products globally, to smaller businesses innovating and looking to grow into the giants of tomorrow.
We think this combination, and the discount on offer compared to other regions, makes the UK an attractive place to invest right now.
One of the cheapest and easiest ways to invest in the UK stock market is through an exchange traded fund (ETF) index tracker. Here are three options, investing in slightly different parts of the UK stock market.
Investing in ETFs isn’t right for everyone. Investors should only invest if the ETF’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. You should understand the specific risks before investing, and make sure any new investment forms part of a diversified portfolio. Investments and any income they produce can rise and fall in value, so you could get back less than you invest.
Lots of ETFs use securities lending to try to generate additional returns to help pay for the costs of running them. All the ETFs listed below use securities lending and have the flexibility to use derivatives –both add risk. These ETFs are also domiciled outside of the UK, which means they aren’t normally covered by the UK Financial Services Compensation Scheme.
iShares PLC Core FTSE 100 – the biggest UK companies
BlackRock is the biggest asset manager in the world right now, running over $9tn globally as of October 2023.
The iShares brand is BlackRock's family of index tracking and exchange traded funds. Being such a big player in index tracking gives BlackRock unique access to the marketplace, which can help lower trading costs.
The iShares Core FTSE 100 ETF aims to track the performance of the UK’s largest 100 companies, measured by the FTSE 100 index. It does this by investing in every company, and in proportion with each company’s index weight. This is known as full replication, which can help the ETF track the index closely.
This means this ETF gives investors exposure to the share price performance of some well-known companies like Shell, AstraZeneca, HSBC and Unilever. It invests most in sectors like financials, consumer staples and industrials.
While the FTSE 100 is a UK index, a lot of the companies are big multinationals, meaning they also earn money overseas. So, investors are indirectly investing into foreign economies as well as the UK.
This ETF could be used to diversify a long-term global investment portfolio, or one focused on smaller companies or other investments like bonds.
Top 10 holdings
Name | Weight (%) |
|---|---|
Shell Plc | 9.28 |
AstraZeneca Plc | 8.24 |
HSBC Holdings Plc | 6.23 |
Unilever Plc | 4.71 |
BP Plc | 4.3 |
GlaxoSmithKline | 3.23 |
RELX Plc | 3.08 |
Diageo Plc | 3.05 |
Rio Tinto Plc | 2.91 |
Glencore Plc | 2.82 |
iShares UK Dividend ETF – UK Equity Income
The iShares UK Dividend ETF offers a low-cost option for tracking the performance of the FTSE Dividend UK+ index.
The index offers exposure to 50 of the highest dividend-paying stocks listed in the UK, while still making sure it’s diversified across multiple sectors.
Like iShares PLC Core FTSE 100, this fund uses full replication.
To help keep costs down, the team uses cash to make big purchases instead of lots of small transactions.
iShares UK Dividend ETF gives investors exposure to the share price performance of some well-known companies. The biggest investments in the index are in Vodafone, HSBC, British American Tobacco and Imperial Brands. The index currently has the most invested in the financials, consumer staples and utilities sectors.
This ETF could provide income in a portfolio focused on growth or diversify a portfolio focused on bonds.
Top 10 holdings
Name | Weight (%) |
|---|---|
HSBC Holdings Plc | 5.14 |
Vodafone Group Plc | 4.73 |
British American Tobacco | 4.64 |
Rio Tinto Plc | 4.56 |
Imperial Brands Plc | 4.45 |
Legal and General Group Plc | 4.09 |
NatWest Group Plc | 3.81 |
Lloyds Banking Group Plc | 3.72 |
BP Plc | 3.64 |
National Grid Plc | 3.48 |
Vanguard FTSE 250 ETF – medium sized UK companies
Vanguard is a pioneer when it comes to passive investing. They created the first retail index fund over 45 years ago and now it’s running some of the biggest index funds in the world.
Given its size, it has a big investment team with expertise and resources to help its ETFs track indices and markets as closely as possible. This scale also helps keep costs down.
The Vanguard FTSE 250 ETF aims to track the performance of medium-sized companies in the UK, measured by the FTSE 250 index. Like the other ETFs we’ve mentioned, it does this by using full replication, which should help the fund track the index closely.
These businesses make more of their money domestically than their FTSE 100 counterparts. So, they’re less reliant on foreign economies than some of the bigger UK companies.
That said, the FTSE 250 also includes investment trusts, some of which invest in overseas markets and gives the fund some international diversification. For example, there are five investment trusts in the 10 biggest investments in the ETF right now.
Some of the other big investments include Vistry Group, Hiscox, Spectris and Games Workshop. The ETF currently has most invested in the financials, consumer staples and industrials sectors.
This ETF invests in some smaller companies too, which are higher risk.
ETFs that focus on the UK’s medium-sized companies could be used to diversify a long-term global investment portfolio, or one focused on bigger companies or other investments like bonds.
Top 10 holdings
Name | Weight (%) |
|---|---|
Vistry Group plc | 1.31 |
Hiscox Ltd. | 1.28 |
LondonMetric Property plc | 1.18 |
Polar Capital Technology Trust plc | 1.14 |
British Land Co. plc | 1.13 |
Alliance Trust plc | 1.08 |
Spectris plc | 1.04 |
Games Workshop Group plc | 1.02 |
Investec plc | 1.01 |
Greencoat UK Wind plc | 1.00 |
This isn’t personal advice or a recommendation to invest. If you’re not sure an investment’s right for you, ask for financial advice.
You can get back £100 of online ETF dealing charges with us until 21 June.
We’ll refund the first £100 of dealing charges on all trades of ETFs, investment trusts, UK and overseas shares, gilts and bonds made online or through the app. Other costs, like FX charges and stamp duty, may apply. Terms apply.