3 ETFs for a Stocks and Shares ISA

Vanguard is a pioneer when it comes to passive investing, having created the first retail index fund over 45 years ago. It now runs some of the largest index funds and ETFs in the world.

Given its size, it has a big investment team with the expertise and resources to track indices and markets as closely as possible, while having scale to keep costs down.

The Vanguard FTSE All-World ETF is made up of large and medium-sized companies from across the globe in developed and higher-risk emerging markets.

The ETF uses partial replication of the FTSE All-World Index, investing in most of the companies, but not every single one. Companies that make up a very small part of the index aren’t always held as they can be more difficult or expensive to buy and sell, increasing costs.

Nearly two thirds of the ETF is invested in the US, with the rest spread across other markets like Japan, the UK and China. Technology companies make up a big part of the index, followed by financials.

This ETF could be a simple and low-cost starting point for an investment portfolio aiming to deliver long-term growth.

Given its large weighting to the US, it could help diversify a portfolio that’s focused on other regions like Asia and Europe.

The Vanguard FTSE Emerging Markets ETF aims to track the performance of the FTSE Emerging Index. It does this by investing in nearly all of the underlying companies in the index.

Partial replication can help the ETF track the index closely without the need to buy all of the smaller companies in the index, which can be more difficult and costly to trade.

The index includes a range of large and medium-sized companies in emerging markets like China, India and Taiwan. These markets are higher risk because they're at an earlier stage of development.

This ETF should only be considered for a portfolio with a long-term investment outlook that can accept periods of more ups and downs.

It could provide some growth to a more conservatively-invested portfolio, or provide some diversification to one focused on developed markets.

The Vanguard Global Aggregate Bond ETF invests in a range of bonds. It tracks the Bloomberg Global Aggregate Index Hedged GBP, which is made up of around 30,500 global bonds.

The ETF has a bias towards global government bonds, while the rest is invested in company issued bonds. These are all investment grade bonds that are deemed to be more likely to pay off their debts than some higher-risk bonds, like high yield bonds.

It invests in around a third of the bonds in the benchmark, which is known as partial replication. This helps keep costs down as the ETF doesn’t buy and sell every bond that’s added to or removed from the index. It also invests in higher-risk emerging markets in line with the benchmark.

The team uses currency hedging to convert overseas currency bonds back to sterling. The prices and income of global bonds can go up and down with foreign currency movements, adding volatility for UK investors.

By hedging, investors could experience less extreme price movements over time, which could help smooth potential returns. That said, currency hedging can be expensive and is done through derivatives which adds risk.

This ETF could provide a different type of return and help diversify a portfolio that already has exposure to shares.