With many central banks around the world having cut interest rates in 2024, alongside government bond yields remaining stubbornly high, bonds continue to look attractive going into 2025.
At the same time, with changes in the White House and incoming US tariffs, more domestically-focused US companies have a potential tailwind compared to international peers looking to sell their products into the largest economy in the world.
With so much change coming, one thing is for certain – there will be volatility. In this environment, gold could be a useful diversifier to an investment portfolio if things get choppy.
Here are our five ETFs to watch in 2025.
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.
As ETFs trade like shares, both a buy and sell instruction will be subject to share dealing charges within your Hargreaves Lansdown account, except online in a Junior ISA.
This isn’t personal advice or a recommendation to invest. Remember, all investments and any income they produce can fall as well as rise in value so you could get back less than you invested. Past performance isn’t a guide to future returns. If you’re not sure an investment is right for you, ask for financial advice.
Information correct as at 31 October 2024, unless otherwise stated.
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An ETF is a basket of investments that usually includes shares or bonds. They tend to track the performance of an index like the FTSE 100 and trade like shares on stock exchanges. This means their prices fluctuate throughout the day.
Lots of ETFs use securities lending to try to generate additional returns that help pay for the costs of running them – this adds risk. Of the ETFs listed below, the Vanguard FTSE Emerging Markets ETF, Vanguard FTSE All-World High Dividend ETF and iShares S&P Small Cap 600 ETF all use securities lending.
Most of the ETFs below have the flexibility to use derivatives, which also increases risk if used. The only one that doesn’t use derivatives is the iShares Physical Gold ETC.
Please note as the ETFs below are domiciled outside of the UK, they are not normally covered by the UK Financial Services Compensation Scheme.
Global bonds – Vanguard Global Aggregate Bond DETF
Matching markets through global government and company bonds
Vanguard is a pioneer when it comes to passive investing. They created the first retail index fund over 45 years ago and now run some of the largest 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 Global Aggregate Bond ETF invests in a range of fixed income investments. Its benchmark, the Bloomberg Global Aggregate Index Hedged GBP, is made up of a mixture of around 30,500 global bonds.
The index mostly includes global government bonds, while the rest invests in company issued bonds. These are all investment grade bonds that are considered more likely to pay off their debts than some higher-risk bonds, like high-yield bonds.
The ETF invests in around a third of the number of constituents in its 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. The ETF 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 helps smooth potential returns. That said, currency hedging is done through derivatives which adds risk.
This ETF could provide a different type of return and help diversify an investment portfolio that already has exposure to shares or overseas currencies.
US smaller companies – iShares S&P Small Cap 600 ETF
Low-cost tracking of smaller listed US companies
This ETF uses partial replication of the S&P 600, investing in nearly all the underlying companies of the index, and in line with each company’s index weight.
It sometimes won’t invest in companies that make up a very small part of the index as they can be more difficult or expensive to buy and sell.
Small and medium-sized companies can offer greater growth potential than larger counterparts but are often higher risk.
This ETF could provide some diversification to an investment portfolio focused on shares in larger companies. It also allows you to invest in more domestically-focused companies in the US.
Gold – iShares Physical Gold ETC
Low-cost tracking of the spot price of gold
This exchange traded commodity (ETC) aims to provide exposure to physical gold and therefore represents real gold bars held in a vault.
JPMorgan act as the custodian for the gold bars, making sure it’s kept in a highly secure vault in London on behalf of ETC investors.
Each ETC security has a metal entitlement which is the amount of physical gold backing it. iShares carry out daily reconciliation of the number of bars needed for the ETC. The list of the metal bars in the vault are published daily on iShares.com.
We think investments in a specific commodity like gold should usually only form a small part of a well-diversified investment portfolio.
Emerging market equity – Vanguard FTSE Emerging Markets ETF
Low-cost tracking of companies in emerging markets around the world
The ETF uses partial replication of the FTSE Emerging Index, investing in nearly all the underlying companies of the index, and in line with each company’s index weight.
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.
The index offers exposure to 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 fund should only be considered for a portfolio with a longer investment outlook that can accept periods of lots of volatility.
This ETF could provide some growth to a conservatively invested portfolio or provide some diversification to one focused on developed markets.
Global equity – Vanguard FTSE All-World High Dividend Yield ETF
Low-cost tracking of dividend-paying companies in developed and emerging markets.
The FTSE All-World High Dividend Yield ETF index is made up of large and medium-sized company stocks in developed and higher-risk emerging markets that pay dividends that are generally higher than average.
Real estate investment trusts (REITs) aren’t included in the index, and neither are stocks that forecast a zero dividend over the next 12 months.
With the focus on income, around a quarter of the ETF is invested in the financial sector, followed by investments in industrials and consumer staples. The ETF invests mostly in the US, Japan and UK.
This ETF could be used to increase the income potential from an investment portfolio, or to help diversify a portfolio focused on capital growth.
Find out which funds we've picked for five funds to watch in 2025.