The UK stockmarket has long been a source of dependable dividend income – but where are the opportunities for growth/income/value? Hal Cook, senior investment analyst, Hargreaves Lansdown shares his thoughts:
“There’s a lot to like about the UK stock market. For a long time, it’s been known as a good place to look for dividend income. And with mature industries like banks, oil and gas, and tobacco this shouldn’t come as a surprise.
But there are plenty of growth opportunities too. From big consumer goods companies selling their products globally, to smaller businesses innovating and looking to grow into the giants of tomorrow.
We think this combination, and the discount on offer compared to other regions, makes the UK an attractive place to invest right now.
One of the cheapest and easiest ways to invest in the UK stock market is through an Exchange Traded Fund (ETF) index tracker.
ETFs are funds which are traded on a stock exchange. Most ETFs track the performance of a share or bond index like the FTSE 100 or S&P 500. Unlike passive ‘mutual’ funds which are priced once a day, ETFs are traded like shares and their price varies throughout the day.
There are other ETFs which can allow you to track more than shares or funds. These include Exchange Traded Commodities/Currencies (ETCs) which follow the price of metals, oil, agricultural products or currencies.
Here are three options, investing in slightly different parts of the UK stock market:
iShares PLC Core FTSE 100 – the biggest UK companies
The iShares Core FTSE 100 ETF aims to track the performance of the UK’s largest 100 companies, measured by the FTSE 100 index. It does this by investing in every company, and in proportion with each company’s index weight. This is known as full replication, which can help the ETF track the index closely.
iShares UK Dividend ETF – UK Equity Income
The iShares 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 making sure it’s diversified across multiple sectors. Like iShares PLC Core FTSE 100, this fund uses full replication.
Vanguard FTSE 250 ETF – medium sized UK companies
The Vanguard FTSE 250 ETF aims to track the performance of medium-sized companies in the UK, measured by the FTSE 250 index. Like the other ETFs we’ve picked, it does this by using full replication, which should help the fund track the index closely.
These businesses make more of their money domestically than their FTSE 100 counterparts. So, they’re less reliant on foreign economies than some of the bigger UK companies.
That said, the FTSE 250 also includes investment trusts, some of which invest in overseas markets and gives the fund some international diversification. For example, there are five investment trusts in the 10 biggest investments in the ETF right now.”
