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Four ETFs worth considering for your ISA 2023-24 allowance

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A Stocks and Shares ISA is one of the best ways to help grow your wealth over the long term. ISAs offer a way to shelter your investments from UK income and capital gains tax. It means you can make the most of your investments.

The deadline to use this tax year’s ISA allowance is 5 April. As long as you add money by 11:59pm on 5 April, it will count towards this year’s allowance. If you decide to shelter your money from tax in an ISA, your next decision is where to invest it. Hal Cook, a senior investment analyst with Hargreaves Lansdown, here highlights four Exchange Traded Funds which could be a great addition to a diversified investment portfolio.

Vanguard FTSE All-World ETF

Vanguard is a pioneer when it comes to passive investing, having created the first retail index fund over 45 years ago. It now runs some of the largest index funds in the world. Given its size, it has a big investment team with the expertise and resources to help its ETFs track indices and markets as closely as possible, while having scale to keep costs down.

The Vanguard FTSE All-World ETF offers a low-cost option for tracking the performance of the FTSE All-World Index. The fund tracks the benchmark by investing in nearly all the underlying companies of the index, and in line with each company’s index weight. This is known as partial replication and can help the fund track the index closely. Companies that make up a very small part of the index are sometimes not held in the fund as they can be more difficult or expensive to buy and sell.

Global stock market trackers provide a good foundation to an investment portfolio focused on long-term growth, income, or both. Investing in companies across the globe provides a good level of diversification in a single ETF. The largest regional investments within the index are in the US, Europe and Japan. The sectors that have the most invested are technology, financials and consumer discretionary.

This ETF does invest in emerging markets, which are higher risk as they’re at an earlier stage of development.


Vanguard FTSE Emerging Markets ETF

Emerging markets have strong growth potential, which makes ETFs focused on the area suitable for ISAs with a long investment horizon.

The Vanguard FTSE Emerging Markets ETF offers a low-cost option for tracking the performance of the FTSE Emerging Index. The fund tracks the benchmark by investing in nearly all the underlying companies of the index, and in line with each company’s index weight. This is known as partial replication and can help the fund track the index closely. Companies that make up a very small part of the index are sometimes not held in the fund as they can be more difficult or expensive to buy and sell.

The index therefore offers exposure to a range of large and medium-sized companies in emerging markets such as China, India and Taiwan.

Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in the region. Domestic consumption is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth. These countries have also become hotbeds of innovation and some companies based there are at the forefront of technology.

Investing in emerging markets comes with risks though, especially as their political, economic, and regulatory environments are less evolved, or different, than developed markets. This can also create more volatility than developed markets.

This ETF could provide some growth to a conservatively invested portfolio, or provide some diversification to a portfolio focused on developed markets.

iShares UK Dividend ETF

The iShares FTSE UK Dividend ETF offers a low-cost option for tracking the performance of the FTSE Dividend UK+ index. The index offers exposure to 50 of the highest dividend paying stocks listed in the UK, while still ensuring that it is diversified across multiple sectors. The highest sector exposures are to areas such as financials, consumer staples and materials.

Equity income ETFs can be a great addition to an ISA portfolio for different reasons. You can take the pay-outs to supplement your income and have a bit of extra cash in your back pocket. Or if you’re targeting growth and aiming to build your portfolio for longer, reinvesting dividends can help grow your pot thanks to the beneficial effect of compounding.

iShares Global Corporate Bond ETF

Bonds offer investors diversification away from shares. While they may provide lower returns than shares over the long term, this diversification is expected to smooth returns of a portfolio over time.

The iShares Global Corporate Bond ETF offers a low-cost option for tracking the performance of the Bloomberg Global Aggregate Corporate Bond index. The index offers diverse exposure to investment grade bonds issued around the globe. There are bonds from sectors including banking and the consumer. Investment grade bonds are those from the lower end of the risk spectrum, meaning fewer companies in this area of the market are expected to default on their bond payments.

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Hargreaves Lansdown IG Interactive Brokers Interactive Investor Charles Stanley
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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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