State Street FTSE UK All-Share ETF: May 2024 update

• State Street has been running ETFs since 1993

• This ETF provides access to hundreds of small, medium-sized and large UK companies

• Since launch, the ETF has tracked the FTSE All-Share Index closely

How it fits in a portfolio

An ETF is a basket of investments that often includes shares or bonds. They tend to track the performance of an index such as the FTSE All-Share Index and trade on stock exchanges, like shares. This means their price fluctuates throughout the day.

Find out more about ETFs

The State Street FTSE UK All-Share ETF invests in a range of UK companies of different sizes and across a variety of sectors. The FTSE All-Share Index is a combination of several FTSE indices, including the FTSE 100, FTSE 250 and FTSE Small Cap. It covers 98% of the UK market and offers exposure to hundreds of companies. The ETF is heavily weighted in larger businesses meaning performance may be similar to the FTSE 100 – the UK’s 100 largest companies – especially over shorter periods.

An ETF is one of the simplest ways to invest and can be a low-cost starting point for an investment portfolio aiming to deliver long-term growth. ETFs that mainly focus on the UK’s larger companies could help diversify a global investment portfolio, or one focused on smaller companies or bonds.

Manager

Each ETF at State Street has a primary and secondary manager, though this changes as part of the broader investment portfolio team who manage all index products as one group. They have a global investment equity team of over 70 portfolio managers and researchers which help create and run the investments.

State Street also has dedicated teams that work with brokers and banks to analyse the trades that they place for clients. They ensure that clients are receiving the best trading outcome, like keeping costs as low as possible. Lower costs should help the ETFs track their benchmarks as closely as possible.

Process

This ETF aims to track the performance of the UK stock market, as measured by the FTSE All-Share Index. It doesn’t buy every company in the index though and currently invests in 554 companies compared with 563 in the FTSE All-Share Index. This is known as partial replication and can help the ETF track the index without the cost of buying all the holdings.

The ETF excludes some of the smallest companies in the index because they can be more difficult or costly to trade. They also don’t tend to have as much impact on the FTSE All Share’s performance compared with the largest companies that make up a bigger proportion of the index. Excluding them therefore means the ETF can achieve a more cost-effective way of tracking the index.

It does invest in some smaller companies though and, while they have greater potential for growth, they can experience more extreme price movements, which increases risk.

The ETF also has tracking error targets, which measure how closely it's tracking its benchmark. These are monitored by the portfolio managers daily to ensure the ETF is closely following the index.

This ETF can lend some of its investments to others in exchange for a fee in a process known as stock lending. This helps offset some of the costs involved with running the ETF but is a higher risk approach.

Culture

State Street is mainly a passive house and has more than 40 years of indexing experience. It created the first US ETF in 1993 and has continued to grow this business ever since. It is currently the third largest asset manager in the world and runs $3.69trn of assets globally as at 31 December 2023. SPDR is the ETF brand of State Street.

Employees at State Street are encouraged to hold shares in the company so that they are engaged with helping the company perform well and grow. This should help align the company’s interests with its long-term investors.

ESG Integration

State Street signed up to the Principles for Responsible Investment in 2012. The company has an Asset Stewardship team tasked with voting at company meetings and engaging with them on a variety of Environmental, Social and Governance (ESG) and non-ESG related topics.

State Street first offered ESG ETFs in Europe in 2019 and has continued to develop its product range since then. Given State Street offers mostly passive products, there’s often less flexibility to integrate ESG metrics. Instead, State Street focuses on long-term engagement to drive positive change. The company produces a comprehensive annual Asset Stewardship report, which describes its voting and engagement processes and activity in detail.

In February 2024, State Street controversially withdrew from the Climate Action 100+ collaborative engagement initiative, having concluded that new requirements introduced by the scheme were not consistent with the firm’s ‘independent approach’ to voting and engagement. However, there are some suggestions that US political pressure was to blame.

The State Street FTSE UK All-Share ETF is a passive fund designed to track an index, so it doesn’t integrate ESG analysis or exclude companies deemed to be sin stocks, like those involved in tobacco or alcohol.

Cost

The ETF has an ongoing annual fund charge of 0.20%. The annual charge to hold ETFs in the HL ISA or SIPP is 0.45% (capped at £45 p.a. in the ISA and £200 in the SIPP). There are no charges from HL to hold ETFs within the HL Fund and Share Account or HL Junior ISA. Ensuring an ETF has a low charge is an important part of tracking the underlying index closely.

As ETFs trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

The State Street FTSE UK All-Share ETF has tracked the FTSE All-Share Index well since launch in February 2012. During this period, it’s returned 119.81%* versus 124.24% for the benchmark. As is typical of ETFs, it’s lagged the benchmark over the long term due to the costs of running the ETF such as dealing charges and taxes. However, the tools used by the managers have helped to keep performance as tight to the index as possible.

The FTSE All-Share Index currently has significant exposure to sectors such as financial services, consumer staples, healthcare and industrials. Therefore, these sectors are likely to have the biggest impact on the ETF’s performance, though the makeup of any index can change over time.

Over the last year to the end of April 2024, the ETF rose by 7.18% compared to the benchmark which rose by 7.50%. The sectors that contributed the most to performance were industrials, energy and financial services. Smaller UK companies outperformed the medium sized and larger companies in the index.

Inflation and interest rates have been a key focus for investors over the year. Inflation in the UK has fallen by more than half to its lowest rate since 2021 but is still above target. Interest rates reached their highest level since 2008 in August 2023 and have remained stable ever since. The expectation that the next move for interest rates in the UK will be down rather than up has increased investor confidence and the FTSE 100 Index reached an all-time high in April 2024.

Given State Street’s size, experience and expertise running ETFs, this ETF should continue to track the FTSE All-Share index well in the future, though there are no guarantees. A glance at the five-year table below shows that in some years the ETF has tracked its benchmark closer than others. Remember, past performance isn’t a guide to future returns.