FTSE 100 is one of the most popular indices in the world. Savvy investors replicate this index to diversify their portfolios, but not all funds are created equal. In this article, we’ll introduce you to everything you should know about FTSE 100 and the best FTSE 100 ETFs to diversify your investment.
What is the FTSE 100?
The FTSE 100 stands for Financial Times Stock Exchange, composed of the 100 main companies with the highest market capitalisation in the United Kingdom. These companies represent 70% of the total value of the London Stock Exchange.
The index has been reviewed quarterly since its origin in 1984: in March, June, September, and December.
Which companies are part of the FTSE 100?
The index itself contains 100 companies. The right ETF should replicate the index as closely as possible and with minimal error in order for investors to generate the same returns as the index. Here are the top 10 holdings in the index:
|British American Tobacco||3.43|
Investing in FTSE 100 ETFs
Among the various options for investing in the FTSE 100, one of them is via ETFs. This can be a good opportunity to diversify your portfolio with the top 100 largest companies on the London Stock Exchange.
Hence, one of the benefits of this approach is that it allows you to invest in a wide variety of companies belonging to different sectors. Diversification has multiple advantages as it can provide greater stability and long-term growth opportunities for the portfolio.
Costs of investing in FTSE 100 ETFs
Like stocks or mutual funds, ETFs (exchange-traded funds) are not free of charge. Their costs vary from fund-specific costs (such as the total expense ratio) to broker-specific costs, such as commissions.
The fund-specific costs are often listed in the prospectus or detailed by the issuer. At the same time, you need to do your due diligence when picking a broker to invest in ETFs and choose the one with the lowest fees for this asset type.
Pros and cons of investing in FTSE 100 ETFs
Pros of investing in the FTSE 100
- Provides diversification benefits and may lower the overall portfolio list
- More affordable to invest in an ETF directly than to buy shares of each company separately
Cons of investing in the FTSE 100
- Diversification is quite limited as the index only tracks the UK’s economy
Best FTSE 100 ETFs
Here are some of the most profitable FTSE 100 ETFs:
|iShares Core FTSE 100 UCITS ETF GBP (Acc)||SXRW||41.84||0.07|
|HSBC FTSE 100 UCITS ETF GBP||H4ZB||41.64||0.07|
|Xtrackers FTSE 100 UCITS ETF Income 1D||XUKX||41.58||0.09|
|Vanguard FTSE 100 UCITS ETF (GBP) Acc||VUKG||41.48||0.09|
|Vanguard FTSE 100 UCITS ETF Dis||VUKG||41.46||0.09|
Intuitively, these ETFs all track the same index, so they have a very similar performance, but there is a small difference in case of the total expense ratio. Let’s have a closer look at the top three ETFs.
iShares Core FTSE 100 UCITS ETF GBP (Acc)
The iShares Core FTSE 100 UCITS ETF GBP (Acc) is an Exchange Traded Fund that started trading at the outset of 2010. With a total expense ratio (TER) of just 0.07% and the fund denominated in British pounds (GBP), it offers an attractive option for investors due to its low fees.
This ETF is provided by iShares, and it follows an accumulation distribution policy, meaning the income generated by the ETF is automatically reinvested back into the fund, rather than being distributed to the holders. It’s worth noting that this ETF employs a physical replication strategy, directly buying the securities that make up the FTSE 100 index.
HSBC FTSE 100 UCITS ETF GBP
HSBC ETF serves as the provider for this fund, which follows a semi-annual distribution policy. Like the iShares Core FTSE 100 UCITS ETF GBP (Acc), this fund employs a physical replication strategy.
Xtrackers FTSE 100 UCITS ETF Income 1D
Taking the third spot based on three-year performance is the Xtrackers FTSE 100 UCITS ETF Income 1D, which started trading in mid-2007.
This ETF has a slightly higher TER of 0.09% compared to the previous two ETFs at 0.07%. It shares the same characteristics as the others regarding the trading currency (GBP).
The provider of this fund is Xtrackers, and it operates on an annual distribution policy. Like the other two ETFs, it also adopts a physical replication strategy.
Other ETF articles & recommendations
- Best ETFs for investing in NASDAQ 100
- Most successful Vanguard ETFs
- Index funds vs ETFs
- ETF vs ECN vs ETN
- Best ETFs
- Best ETF brokers
- How to choose an ETF
- Accumulating vs distributing ETF
- Index fund
FTSE 100 ETFs summary
All in all, if you want to invest in the FTSE 100, exchange-traded funds are one of the best options. They are traded just like stocks and are known for their close replication of the index. As with any other investment, it’s important to do your due diligence before investing in any asset.
FTSE 100 FAQs
Where is the FTSE 100 traded?
The FTSE is listed on the London Stock Exchange (LSE), that is, on the London Stock Exchange, grouping the 100 largest companies in the country according to capitalisation.
How to invest in FTSE 100 ETFs?
You need to sign up with a broker in order to invest in FTSE 100 ETFs.
Is the FTSE 100 a good investment?
Historically, the FTSE 100 has outperformed inflation, which makes it a good choice for many long-term investors. However, make sure you do your own research before investing in any asset.