5 exchange traded funds (ETFs) to watch for 2024 – how have they performed?

Global bonds – Vanguard Global Aggregate Bond ETF

The Vanguard Global Aggregate Bond ETF aims to track the performance of the Bloomberg Global Aggregate Index (Hedged GBP) which includes a mixture of global government, corporate and securitised bonds. Securitised bonds are bonds backed by assets, for example mortgages.

It mainly invests in the US and other developed countries, but has some exposure to higher risk emerging markets.

Over the first six months of 2024, the ETF returned -0.54%*.

There was a strong rally in bond markets at the end of 2023 led by the expectation that interest rate cuts were on the horizon. But bonds have sold off in the first half of the year as most major economies held off on lowering rates.

Bond yields move in the opposite direction to prices so as prices have come down, yields have gone up. At the end of June, the ETF’s yield was 2.83%.

This ETF is a low-cost and easy way to gain exposure to over 10,000 global bonds and could help diversify a portfolio focused on other assets, like shares.

GBP Investment Grade Bonds – iShares Core GBP Corporate Bond ETF

The iShares Core GBP Corporate Bond ETF offers a simple and low-cost option for tracking the performance of the Markit iBoxx GBP Liquid Corporates Large Cap Index. This index offers diverse exposure to investment grade bonds issued in pound sterling.

While the ETF is heavily focused on investment grade corporate bonds, it can hold some high yield bonds at times, which increases risk.

Over the six months to the end of June, the ETF fell 0.60%*.

Bonds have typically lost some value over the first six months of the year, as expectations of interest rate cuts have been pushed back.

Despite slightly negative returns, the ETF is offering an attractive yield which helps to offset some of the fall in value. At the end of June, the ETF’s yield was 4.54%.

This ETF could be used to diversify a long-term global investment portfolio, including those focused on shares or other bonds from regions like the US or Europe.

UK Equity – iShares UK Dividend ETF

The iShares UK Dividend ETF offers a low-cost way to track the performance of the FTSE UK Dividend+ Index. This index is yield weighted and designed to select and measure the performance of the highest yielding companies in the FTSE 350 Index, excluding investment trusts.

Over the first half of the year, the ETF returned 6.99%*. Because of the focus on income, the index leans towards sectors like financials, which performed well during this time, as higher interest rates have been a tailwind for banks.

The ETF’s yield was 5.49% as of the end of June.

The UK stock market is still one of the most attractive markets for dividend investors. This ETF provides an alternative way to invest for income, as opposed to cash or bonds. Although, investing in share-based investments comes with added risks and higher volatility.

This ETF could complement other income funds in a portfolio or diversify a global portfolio focused on other regions like the US or Asia.

Emerging Market Equity – Vanguard FTSE Emerging Markets ETF

The Vanguard FTSE Emerging Markets ETF aims to track the performance of the FTSE Emerging Index.

The index has a large weighting in China, India and Taiwan. That means these markets have a big impact on the ETF’s overall performance.

Over the six months to the end of June, the ETF returned 8.74%*.

Taiwan’s stock market was one of the best-performing emerging markets, rising 30.72%. India’s stock market also performed well, gaining 18.10%.

China’s stock market rose 5.71%, which isn’t as impressive but is a big improvement compared to the previous six months. There are signs that the situation in China could be starting to get better, although there are still challenges to overcome, especially in the property sector.

This ETF is a simple and low-cost way to gain exposure to emerging markets and could help to diversify a global portfolio. Emerging markets are higher risk as they're at an earlier stage of development. So this ETF should only be considered for a portfolio with a longer investment outlook that can accept periods of high volatility.

Global Equity – Vanguard FTSE All-World High Dividend Yield ETF

The Vanguard FTSE All-World High Dividend Yield ETF provides a low-cost option for tracking the performance of the FTSE All-World High Dividend Yield Index. It invests in companies in developed and higher risk emerging markets, paying dividends that are generally higher than average.

Over the first six months of 2024, the ETF rose 6.83%*, in line with the index that it tracks. But this did lag the performance of the broader global stock market, as returns continue to be driven by big developments in artificial intelligence in the technology sector. A lot of these companies don’t pay a dividend and so don’t make it into this ETF.

Financial companies performed strongly in the first half of the year and currently make up a large portion of this income focused ETF. Higher interest rates have increased the margins of many banks across the world, boosting profits and resulting in record dividend payouts .

The ETF’s yield was 3.17% as of the end of June, higher than the yield of the broader global market.

This ETF could diversify an income portfolio focused on bonds, although investing in shares is higher risk. As it’s heavily invested in the US, it could also diversify a portfolio focused on other regions like Europe and Asia.