I will run down the 5 cheapest UK equity ETFs in this quick guide, to help cost-savvy investors pick funds which match their desire to pay less in fees.
Why are UK equity ETFs so cheap?
Exchange-Traded Funds, or ETFs for short, are a relatively new form of fund which have become hugely popular in the 21st century as a way to passively invest in the stock market.
Passive funds aim to track the performance of an underlying index, such as the FTSE 100 index of large UK listed companies.
Passive funds (such as the cheapest UK equity ETFs) operate with minimal staff. They simply don’t need an army of financial analysts or highly remunerated ‘fund managers’ to pick stocks.
This helps reduce or avoid investing costs which other actively unit trusts need to pass onto investors in the form of higher management charges to recover.
The cheapest UK equity ETFs – ranked
It’s time to count down the cheapest UK equity ETFs in order of most expensive to lowest cost.
ETF information accurate at the date of publishing (9 August 2020).
5. Vanguard FTSE 250 UCITS ETF
Coming running-up in the low-cost equity ETF competition is the Vanguard FTSE 250 ETF with ticker symbol VMID.
This ETF has a gross dividend yield of 3.03% as of writing. That’s not as attractive as its large-cap sibling below, but smaller companies on the FTSE index do tend to use their dividends to finance their high growth rates.
The price for accessing these smaller companies on the ‘footsie’? An Ongoing Charges Figure of just 0.1% per year.
Ongoing Charges Figure, or OCF for short, is the new UK benchmark for comparing fund fees. This includes the standard management charges, but also some additional costs incurred by the fund.
I have formed this ranking on the basis of the quoted OCF of each ETF.
4. Vanguard FTSE 100 UCITS ETF
This ETF in the first ETF on this list to track the FTSE 100 index.
This ETF, with ticker symbol VUKE, features a cheap charge figure of 0.09%, which is one of the factors supporting a 4%+ dividend yield.
Believe it or not, Vanguard offers even cheaper UK equity funds with lower ongoing charges.
However, as they’re not exchange-traded funds they cannot be featured in this list. They can be bought via your stockbroker, fund supermarket or even directly from Vanguards online investment platform.
3. HSBC FTSE 100 UCITS ETF
HSBC may have been slightly later to the ETF game than other players such as Vanguard, Barclays and Blackrock, but it has brought a strong competition into the game with its FTSE 100 tracker.
Carrying an OCF of just 0.07%, this HSBC ETF keeps the bills down for the benefit of its investors. It’s such low charges figure that it almost comes out on top.
2. iShares 100 UK Equity Index Fund (UK)
This classic iShares index fund tracks the FTSE 100 index with an OCF of just 0.06% for its D class of shares.
It’s domiciled in the UK, and carries a Morningstar Rating of 4 stars.
It’s the cheapest fund on this list which aims to mirror the performance of the iconic FTSE 100 share index which is widely reported in financial journalism on a daily basis.
1. iShares UK Equity Index Fund (UK)
The cheapest UK equity ETF is crowned as iShares’ UK Equity Index Fund.
This fund comes with several share classes and domiciles. I’m specifically featuring the version of this fund labelled as ‘Class D – Accumulating’.
Its crowning glory is an OCF of just 0.05%. This fee practically rounds to zero, making this the most efficient exchange-traded funds available on the London Stock Exchange.
Interestingly, this fund does not track the famous FTSE 100 index. Instead, managers follow the FTSE All Share Index instead.