Stocks and Shares ISA investment ideas – 4 exchange traded funds (ETFS)

The Vanguard FTSE All-World ETF offers a low-cost option for tracking the performance of the FTSE All-World Index. Vanguard is a pioneer when it comes to passive investing. It runs some of the biggest index funds in the world.

The fund tracks the benchmark by investing in nearly all the underlying companies of the index, and in line with each company’s index weight. This is known as partial replication and can help the fund track the index closely.

Companies making up a very small part of the index sometimes aren’t held because they can be more difficult or expensive to buy and sell.

Global stock market trackers give a good diversified foundation to an investment portfolio focused on long-term growth, income, or both.

The largest regional investments in the index are in the US, Europe, and Japan. It invests most in the technology, financials, and consumer discretionary sectors.

This ETF could be used as a core building block within a diversified portfolio to provide growth. It could also be used to diversify a portfolio focused on income or more conservatively invested.

This ETF invests in emerging markets, which are higher risk.

Emerging markets have strong growth potential, which can make them suitable for ISAs with a long investment horizon.

The Vanguard FTSE Emerging Markets ETF offers a low-cost option for tracking the performance of the FTSE Emerging Index.

This ETF also uses partial replication, tracking the benchmark by investing in nearly all the underlying companies of the index, and in line with each company’s index weight. Companies making up a very small part of the index sometimes aren’t held because they can be more difficult or expensive to buy and sell.

So, the index offers exposure to a range of large and medium-sized companies in emerging markets like China, India and Taiwan.

Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in this area. Domestic consumption is set to be a key growth driver over the coming years, helped by a young and growing population, and rising wealth. These countries have also become hotbeds of innovation and some companies based there are at the forefront of technology.

This ETF could give some growth to a conservatively invested portfolio or provide some diversification to a portfolio focused on developed markets.

Investing in emerging markets does come with risks though, especially because their political, economic, and regulatory environments are less evolved, or different, than developed markets. This can also create more volatility than developed markets.

BlackRock is currently the biggest asset manager in the world, running over $9 trillion globally as of November 2023.

The iShares brand is BlackRock's family of index tracking and exchange-traded funds. Being such a big player in the index-tracking arena gives BlackRock unique access to the marketplace, which can help reduce trading costs.

The iShares FTSE 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 making sure it’s diversified across multiple sectors. It invests most in financials, consumer staples and materials.

It tracks the benchmark by investing in every stock. This is known as full replication.

In any index tracker fund, taxes, dealing commissions and the cost of running the fund all drag on performance. To help keep these costs down, the team uses cash in the fund to make large purchases instead of lots of small transactions.

Equity income ETFs can be a great addition to an ISA portfolio for different reasons.

You can take the pay-outs to supplement your income and have a bit of extra cash in your back pocket. Or if you’re targeting growth and aiming to build your portfolio for longer, reinvesting dividends can help grow your pot thanks to compounding.

This ETF could form part of an income portfolio or a broader portfolio looking for exposure to bigger UK-listed companies. At the end of January, the ETF offered an historic yield of 5.43%, although yields are variable and aren’t a reliable indicator of future income.

Bonds offer investors diversification away from shares. They might provide lower returns than shares over the long term, but this diversification is expected to smooth returns of a portfolio over time. This could mean less ups and downs for the value of an ISA if some of it’s invested in bonds.

The iShares Global Corporate Bond ETF offers a low-cost option for tracking the performance of the Bloomberg Global Aggregate Corporate Bond index.

The index has diverse exposure to investment grade bonds issued globally. There are bonds from a diverse mix of sectors. Investment grade bonds are from the lower end of the risk spectrum, meaning fewer companies in this area of the market are expected to default on their bond payments.

This fund uses partial replication. The fund has tracking error targets, which measure how closely it's tracking its benchmark. These are monitored by BlackRock on a daily and monthly basis to make sure the fund is closely following the index.

In any index tracker fund, taxes, dealing commissions and the cost of running the fund all drag on performance. To help keep these costs down, the team use cash in the fund to make large purchases instead of lots of small transactions.

This ETF could provide bond exposure for an investment portfolio focused on company shares, or bring some diversification to an investment portfolio that’s already invested in government bonds.

At the end of January, the ETF offered an historic yield of 3.19%. Remember though, yields are variable and aren’t a reliable indicator of future income.