Citywire Selection: our pick of the best sixteen exchange traded funds (ETFs)

Exchange traded funds (ETFs) are a popular, low-cost way of investing in the stockmarket. In a special report we reveal our favourite 16 ETFs covering a wide range of areas such as commodities and emerging markets.

For a full explanation of how exchanged traded funds work and how to buy them read our guide accompanying this report.

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Reaching the gaps active funds cannot reach

Citywire analysts Jonathan Miller and Frank Talbot believe that the funds they invest in should be managed by real people. They do not subscribe to passive investment theories – not a universally held point of view. 

ETFs are passive, they give investors access to assets and markets without any managers trying to ‘add-value’. So what are these passive investments doing in the Citywire Selection?

Miller and Talbot say that they have included ETFs because they operate in some areas where active managers are few and far between. This is why many of those selected here are commodity or emerging market related funds.

This doesn’t mean that fans of ETFs won’t get anything out of this selection. Each ETF is reviewed and most of the reviewers are professionals who like passive investing and ETFs.

There are now 2,300 exchange traded funds worldwide, 600 are available on Citywire ETF page. Of the 145 investments in Citywire Selection, 16 are ETFs:

Some of the words used may not be familiar to readers like TER (total expense ratio) – a measure of annual costs paid by investors – and 'distributor status' (if a fund has distributor status then its returns are seen as capital gains, not income, which could mean lower tax), others may be explained in guides from Selftrade and iShares.

Also, some ETFs own the assets that they track. This can mean owning shares or real bars of gold in vaults. However some ETFs are 'synthetic'  or 'swaps' and do not own these assets. Instead they have agreements with banks or other large institutions which promise to pay the returns of whatever index or asset is being tracked.

Citywire Selection ETFs:

Commodities:

Agriculture

The ETFS Agriculture ETF is designed to track a basket of different commodities which are priced by trading on futures markets. The commodities which make the majority of this ETF are 26% soybeans, 24% corn, 15% wheat and 10% sugar.  

Christopher Aldous, chief executive of investment group Evercore Pan-Asset which manages ETF portfolios for private clients, said: 'We have owned this ETF widely throughout our portfolios since the second quarter of 2009 when we felt that commodity prices had bottomed and quantitative easing [government pumping money into the economy] seemed likely to drive up all asset prices. The headline TER [cost] is fine at under 0.5%, but this is an ETF which doesn’t provide us with tracking information.'