Investor Insights: Core ETFs to start your ISA portfolio

Exchange traded funds are not new but they are becoming a lot more popular among investors. They offer benefits of low costs relatively to actively managed funds and are now more diverse than ever, enabling investors to build exposure to a diverse range of equities.

Gaining exposure to an index is the most straightforward way to go about it, which delivers some ready-made diversification benefits. Of course it's debatable now whether index exposure alone can really be called diversification with significant concentration of a few very large cap stocks. This is the case in the UK as well as the US. There are lots of thematic ETFs out there to do that. There are now more ETFs listed in the US than there are stocks. But fore core holdings in a portfolio large cap index funds are still a pretty good way to go to get started.

Here’s a few core ETFs to build your portfolio around. These are among the most regularly popular ETFs on the platform and among the wider investor community.

iShares Core FTSE 100 (ISF)

This distributing class ETF is a simple way to gain exposure to the UK blue chip index. It offers a fee of 0.07% and has more than £15bn in assets. The similar iShares Core FTSE 100 ETF (CUKX) serves up an accumulation version, where dividends are automatically reinvested.

Vanguard S&P 500 Dist ETF (VUSA)

This is also a distributing class ETF tracking the US S&P 500 index. It’s heavily concentrated in tech (over a third) and three stocks – Nvidia, Apple and Microsoft – make up 20% of the fund. The fund has an ongoing fee of 0.07% and is very liquid with approximately $40bn in assets. Alternatively, for a lower cost option you could look at the SPDR S&P 500 ETF (SPXL), which comes with a fee of 0.03%. If you want to go tech-heavy the Invesco Nasdaq-100 ETF (EQQQ) is an option.

UBS Core MSCI World ETF (WRDA)

For global equities, the MSCI World index is the main benchmark. This ETF has a fee of 0.06%, which makes it the cheapest way to track the index. The alternative State Street SPDR MSCI World (Acc) ETF (SWLD) is larger but has a fee of 0.12%. It should be noted that the three companies making up 20% of the S&P 500 ETF constitute 13% of these. Wherever you look, it’s hard to escape US tech.