Building blocks, Tupperware and Sequins

Today we launch our brand new ETF Hub. ETFs always sound like the younger cousins of UFOs to me, but in fact these Exchange Traded Funds are increasingly popular building blocks for retail investors.

Imagine a metaphorical Tupperware tub. Into which someone adds all the main 500 shares in the States, in proportion to their size. More of the biggest. Less of the smallest. This tub is the S&P 500 fund.

And now imagine I give this tub a good old shake. Divide it into 100 pieces, each piece containing a fraction of all the 500 shares, and I make these pieces available to buy and sell on a stock exchange, just like a share. And so it becomes an S&P 500 Exchange Traded Fund. Voila!

Simples

These ETFs offer a low-cost and simple way to get exposure to the world’s largest markets. You can set. And forget. I know the CEO of a large fund management business who rather kindly has set up Junior SIPPs (DIY pensions) for his very young grandchildren (who are presumably thrilled LOL) and has simply put in a single S&P 500 ETF into it. His logic is that over a 40 or 50-year timeframe, the US market is not a bad way to get exposure to global growth. And if something happens to him, then this asset will just tick along for the grandkids without going too badly wrong.

I have a FTSE100 ETF in my pension. It’s looked pretty poor compared to shinier American stuff of late but it just sits there, unloved and marvellously boring, and I’m in no rush. And for those who think that bonds might look interesting next year, you’re not alone. Some bond ETFs have made it onto the ETF best seller lists of platforms of late.

Thematic ETFs

As well as being used to get easy access to the world’s largest markets, ETFs can also offer a great way to get access to a theme, if you like an idea but have no clue how to pick the individual companies.

WisdomTree has produced an interesting read with its Mega Trends research – worth a read. They group these trends into Technological Shifts, Demographic & Social Shifts, Geopolitical Shifts and Environmental Pressures. And they have all manner of ETFs from AI, Cloud Computing to Recycling Decarbonation options.

In the Hub, various fund selectors share their preferred picks including Peter Sleep from 7IM who shares ideas for inflation-busting investments such as the Amundi MSCI World Healthcare ETF.

And I recently talked to the Head of ETF Equity and Commodity Product Management at Invesco about Clean Energy ETFs, an interesting sector indeed.

However this is investing, not Jackanory

("Do people under the age of 40 know what Jackanory is? And what happened to Jackanory?" Asked Holly, showing her journalistic flair for tabling the most pressing global questions of the day.)

As always, thematic investing can feel more appealing because it’s interesting. But resist the urge to let a good story get in the way of diversification. These picks can hurt. For example, the third best performing blockchain ETF this year is ‘only’ down by 61%! (Yes, you read that right).

But they can fly as well. The best performing thematic ETF I can find so far in 2022 is the iShares S&P 500 Energy Sector ETF which is up about 95%.

Have I fried your brain?

I had a lovely note from a reader last Friday. He said he didn’t always understand what I was going on about, but he loved the blog anyway! Thank you, sir. If you don’t want to use these building blocks and assemble your own portfolio, that is fine! You can use our Best Buys tables – just open the Advanced Filters and search for Ready Made ISAs. Or investigate multi-asset funds which are your friends.

Or finally – tune in for all our new courses, webinars and content pages coming your way in January – which we’ll give you a sneak preview of before Christmas.

Have a lovely weekend everyone. I feel bereft that I will no longer be able to see Johannes’ quivering bottom lip in Strictly as he hovers on the edge of tears because Craig is nasty or anyone is nice. Oh, I want to go out on the lash with that man so badly!!! Just imagine the squeals and merriment... I’m sure I could rustle up a sequin ETF?

Holly