Exchange-traded funds (ETFs) are taking off in Europe, with the UK in particular driving the current charge.
The London Stock Exchange now hosts more than 2,350 ETF products with over £1 trillion in assets under management (AUM). InvestEngine alone has over 800 ETFs for investors to choose from.
A report from US financial services company State Street found that the UK has seen the biggest influx of new investors anywhere in Europe. Since 2022, more than 3.5 million people have entered the market, a 21% rise.
What makes ETFs such a popular investment option?
An ideal investment vehicle
InvestEngine’s Head of Investments, Andrew Prosser, says:
“ETFs are winning over UK investors not only because of their low costs, but because they can deliver high levels of diversification in a single trade, combined with total transparency about what you own and how it’s constructed.
“All our ETFs are listed on the London Stock Exchange, and trade regularly with tight spreads and rules-based methodologies that help keep prices close to fair value. They can also be held inside tax-wrappers, so investments can grow tax-free. There’s also no stamp duty on purchases of ETFs, making them even more tax-efficient.
“For more active investors, ETFs can provide efficient and targeted access to many different segments of the market – from UK gilts, to global equities, to AI, factors, and commodities – often with currency-hedged options – meaning ETFs can be used to tailor portfolios to individual investors.
With their many benefits, it’s no surprise ETFs have become the default building blocks for UK investors.”
Why are ETFs so popular?
The growth in popularity of ETFs can be attributed to:
Flexibility
ETFs cover a diverse range of exposures across asset classes, regions, investment styles and themes. This broad offering makes ETFs great building blocks for a well-diversified portfolio, allowing investors to select core and satellite holdings to suit their individual investment goals.
With the added ability to quickly and efficiently adapt their positioning, investors can easily adjust the weights of their core, satellite or cash holdings and also take on tactical positions to complement their long-term allocations.
Accessibility
ETFs are listed on one or more stock exchanges and traded just like company shares meaning they can be traded as long as the relevant stock exchange is open.
Cost efficiency
Most ETFs track an index with predefined rules which determine the composition of the underlying securities and the timing and manner of periodic rebalances.
This often makes ETFs cheaper than actively managed mutual funds or investment trusts. Investors should always consult the product documentation such as the Key Information Document (KID) for a full breakdown of fees and charges.
Transparency
ETF providers publish the list of underlying constituents and associated weights for each of their ETFs on a daily basis. This means that investors can see exactly what they own as well as the effects of periodic rebalancing.
In the context of a wider portfolio this allows an investor to see how their underlying holdings interact across multiple investment products allowing them to better manage gaps and overlaps.
Liquidity
ETFs can be traded intraday and source liquidity from their underlying constituents. The least liquid constituent of an ETF determines the ETF’s overall liquidity.
How you can get started with ETFs
Looking to invest in clean energy ETFs? InvestEngine makes it simple, low cost, and flexible, whether you’re dipping your toes in or building a bigger portfolio.
All you need to do is open a portfolio, pick the ETFs you want to invest in and you can start investing commission-free with InvestEngine (ETF costs apply).
Not sure what to invest in? InvestEngine’s ETF range is broken up into simple categories so you can pick the funds that best resonate with your goals.
Why use InvestEngine?
✅ No trading fees or platform fees
Buy and sell clean energy ETFs commission free, so more of your money goes into the market, not into costs (ETF costs apply).
✅ Powerful tools
Track your holdings clearly, compare ETFs, and adjust your portfolio with ease.
✅ Automate your investing
Set up a Savings Plan to invest regularly, just pick the amount and frequency, and InvestEngine does the rest.
✅ Flexible account options
Choose from an ISA, SIPP, GIA, or even a Business Account all with no platform fees on DIY portfolios.
Start investing in ETFs the easy way and join other investors in the UK in making ETFs part of your portfolio.
Important information
Capital at risk. The value of your investments may go down as well as up, and you may get back less than you invest.
ETF costs apply. If in doubt, you may wish to consult a professional adviser for guidance.
Tax treatment depends on your personal circumstances and may change in future. This article is for general information only and does not constitute financial advice.