3 low-cost ETFs to consider for your ISA

A look at whether investors should consider buying these low-cost ETFs before the upcoming ISA deadline?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With just a week to go before the annual ISA deadline, it’s still not too late to consider taking advantage of any remaining ISA allowance you have. If you’re not sure on which stocks to buy, then consider investing in these exchange traded funds (ETFs).

FTSE 100

Stocks are the cornerstone of almost every investment portfolio, and almost every UK investor has at least some exposure to the FTSE 100 Index. It is, after all, the UK’s most watched stock market indicator. With a combined market value of around £2trn, FTSE 100 companies account for roughly 80% of the entire market capitalisation of the London Stock Exchange.

Investing in the FTSE 100 gives you a great deal of exposure to the UK economy, but it also has a lot of international exposure too. That’s because more than 75% of the revenues from FTSE 100 companies actually comes from overseas. Also, being packed with multinationals making most of their earnings in foreign currencies means the index has benefited from the acute weakness of sterling seen in the wake of the Brexit vote of last June.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

With an Ongoing Charges Figure (OCF) of only 0.07%, the iShares Core FTSE 100 UCITS ETF (LSE: ISF) is one of the cheapest funds which track the performance of the FTSE 100 Index.

European exposure

Although the US stock market has outshone European equities in recent years, I think the performance of European stocks could catch up in the coming months. European stocks are, on average, relatively cheap, with a cyclically adjusted price to earnings (CAPE) ratio of around 17, compared to 28 for US stocks.

For exposure to European equities, I reckon the db x-trackers Euro Stoxx 50® UCITS ETF (LSE: XESX) is a great choice. The ETF tracks the performance of the 50 largest companies in the eurozone and benefits from very low costs — its OCF is just 0.09%.

Smart-beta

For investors who aren’t so keen to track broad market indexes, smart-beta ETFs may offer many of the benefits of active management but at much lower cost.

Unlike most traditional passive ETFs, such as the two mentioned above, which follow stock market indexes that give larger companies a proportionately bigger slice of the index, smart-beta ETFs follow a different kind of index, in which stock weights are based on other factors, such as volatility, momentum, value or dividend yield. As such, smart-beta ETFs track tailor-made indexes which attempt to beat the market.

In this space, I’m currently interested in the Vanguard Global Minimum Volatility UCITS ETF (LSE: VMVL). It’s a relatively new fund, which uses a quantitative model to select stocks based on their individual volatility levels and diversification characteristics. Thus, its goal is to produce a portfolio which delivers less volatility and better risk adjusted returns compared to the global equity market.

Vanguard’s smart-beta fund has an OCF of 0.22%, which isn’t much more expensive than the cheapest ETFs on the market today. However, the OCF does not include portfolio transaction costs incurred by the fund, and these transaction costs will most likely be higher for this fund, as it requires periodic re-balancing to ensure less volatile stocks receive larger weightings.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

Down 65% from its highs, this FTSE 250 stock is one to consider buying low

Shares in a strong FTSE 250 company going through a cyclical downturn have caught Stephen Wright’s attention as a potential…

Read more »

Investing Articles

£20,000 invested in a Stocks and Shares ISA 5 years ago is now worth…

Stocks and Shares ISA investors have reaped enormous returns since the pandemic, but how much money have they actually made?…

Read more »