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Always remember that investments can go down as well as up in value, so you could get back less than you put in. A rule of thumb is to hang on to your investments for at least five years to give them the best chance of providing the returns you want.
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If you are looking for passive investments with significant diversification benefits and low fees, you should consider adding index funds to your portfolio. First created in the 1970s, index funds are a popular choice for seasoned and retail investors alike.
Low-cost index funds can be a great long-term investment. They are handy for those who are a little more risk-averse but still want to get involved with investing in the stock market while paying minimal fees.
That said, what exactly is an index fund, and should you be adding it to your portfolio? Our guide below discusses what index funds are, the pros and cons of index fund investing, and our top ten index funds (these are some of the best-performing index funds in the UK).
When you are looking at the index funds below, it is important to consider how they fit into your existing portfolio. The best index funds for you will depend on your specific circumstances.
Below, we have included several high-quality, low-cost index funds, and you can buy them from most online stockbrokers and fund supermarkets.
Stockbrokers and fund supermarkets offering these index funds will also allow you to buy and hold them in a tax-free Individual Savings Account (ISA), Self-Invested Personal Pension (SIPP) or General Investment Account (GIA).
Here are the best index funds in the UK:
*The five-year performance of the index funds in the table above is based on a lump sum investment of £10k in February 2019. This table was created in February 2024. Past performance is not a reliable indicator of future results.
*OCF stands for “Ongoing Charges Figure.” It is a measure of the annual costs associated with investing in a particular index fund. The OCF includes management fees, administrative expenses, and other operating costs incurred by the fund.
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We have detailed some of the best US index trackers below. The United States has the biggest stock markets in the world, which makes it an essential component of any diversified portfolio.
Here are some of the best US index tracker funds available in the UK:
The UBS S&P 500 Index Fund tracks the S&P 500 index, an index of the 500 largest companies listed on the US stock exchanges, such as Apple, Microsoft, Amazon, Tesla, Google, and Johnson & Johnson. The UBS S&P 500 Index Fund is the UK equivalent of the standard US S&P 500 index fund.
Index funds are passive investments, and this fund is no different. The fund invests all, or substantially all, of its assets in the shares of the 500 companies that make up the S&P 500 index (America’s top 500 companies). The index cuts across most leading industries of the US economy, including but not limited to technology, retail, automobiles, financial services, pharmaceuticals, biotechnology, and non-renewable energy.
A single investment into this fund exposes you to all 500 companies on the S&P 500 index.
The five-year average performance of the UBS S&P 500 Index Fund based on a lump sum investment of £10,000 in February 2019 is 99.19%.
If you are looking for a low-cost way to invest passively in the largest companies in the United States, the UBS S&P 500 Index Fund is one of the best index funds in the UK to gain such exposure, and it has a low annual ongoing charge of 0.09%.
Tap the button below to buy the UBS S&P 500 Index Fund. Capital at risk.
Similar to the above fund, the L&G US Index Trust is a low-cost index fund that focuses on a range of large and medium-sized businesses in the US, but it holds a slightly wider range of companies than a straight S&P 500 tracker.
The fund tracks the FTSE USA Index, which currently lists about 605 companies across all major leading sectors of the US economy, including technology, healthcare, consumer discretionary, industrials, financial services, consumer staples, energy, utilities, and real estate. The fund’s objective is to provide passive growth to investors by tracking the performance of the FTSE USA Index. The fund currently tracks about 604 US companies, one less than the index.
The top holdings in the fund include Apple, Microsoft, Amazon, Google (Alphabet A), Google (Alphabet C), UnitedHealth Group, Tesla, Johnson & Johnson, Exxon Mobil, and Berkshire Hathaway. So, it is quite similar to the UBS S&P 500 index with two exceptions: it is cheaper and holds a slightly wider range of companies. It is also somewhat riskier than its S&P 500 counterpart in that the highs and lows are more significant. For instance, the fund fell by 10% in 2022 but was up over 25% in 2021.
The five-year average return of the Legal & General US Index Trust based on a lump sum investment of £10,000 in February 2019 is 98.83%.
If you want to invest in the US but would like a little more allocation to large and medium-sized companies with the potential for higher growth, this FTSE USA index tracker fund is one of the best index funds in the UK for that purpose, with a low ongoing charge of 0.05%.
Tap the button below to buy the Legal & General US Index Trust. Capital at risk.
We have compiled a list of some of the best UK index trackers. While not as well diversified as the US market, the UK market is still home to some of the most innovative and profitable companies in the world. The London Stock Exchange houses a mix of household names and smaller companies listed across a range of sectors.
Here are some of the best UK index tracker funds to get you started:
The Vanguard FTSE 100 Index Unit Trust is a passive fund that tracks the performance of the FTSE 100 index, an index of the 100 largest companies listed on the London Stock Exchange.
The companies in this fund represent most leading sectors of the UK economy, including financial services, consumer staples, energy, healthcare, basic materials, industrials, consumer discretionary, utilities, telecommunications, real estate and technology.
Most people would recognise some of the companies included in the fund, such as Shell, AstraZeneca, Unilever, HSBC, BP, Diageo, British American Tobacco, Glencore, Rio Tinto, and GSK.
The five-year average performance of the Vanguard FTSE 100 Index Unit Trust based on a lump sum investment of £10,000 in February 2019 is 25.02%.
This index fund could be an excellent choice for investors who want exposure to the biggest companies in the UK. The UK market is a particularly good choice for investing in mature, stable industries such as banking, energy and pharmaceuticals. The fund has a low ongoing charge of 0.06%.
Tap the button below to buy the Vanguard FTSE 100 Index Unit Trust. Capital at risk.
The Vanguard FTSE UK All Share Index Unit Trust is a passive index fund that tracks the performance of the FTSE All-Share Index, an index of all eligible companies listed on the London Stock Exchange’s main market.
This fund has a broader range of holdings than the FTSE 100 tracker above, currently holding about 580 company stocks, meaning it invests in smaller companies, too. One investment into this fund gives you access to what is called the “UK total market” or “domestic total market”. If you are keen on increasing your exposure to UK companies, this fund might be a good option for you.
The companies in this fund represent almost every sector of the UK economy, including financial services, consumer staples, energy, healthcare, basic materials, industrials, consumer discretionary, utilities, telecommunications, real estate and technology. As you would expect from a UK total market index fund, the largest portion of the fund (about 22% of the index) is invested in the financial services sector.
Some examples of companies in this index fund include Shell, AstraZeneca, Unilever, HSBC, BP, Diageo, Lloyds Bank, London Stock Exchange, National Grid, Barclays, Vodafone and Tesco.
The five-year average return of the Vanguard FTSE UK All Share Index Unit Trust based on a lump sum investment of £10,000 in February 2019 is 24.33%.
If you want to invest in the UK and particularly want exposure to the whole UK market, including small, mid-sized and large companies, this low-cost index fund might be a great choice. It will provide more growth opportunities than a FTSE 100 tracker but will likely come with greater volatility. It has a low ongoing charge of 0.06%.
Tap the button below to buy the Vanguard FTSE UK All Share Index Unit Trust. Capital at risk.
Global index tracker funds track the performance of companies all over the world, ranging from developed countries to emerging markets.
When you buy an index fund that tracks a global market, you gain exposure to companies in countries other than the US and UK. Global index trackers are a great choice for people who want a highly diversified portfolio without limiting themselves to the domestic and US markets.
Here are some of the best global index trackers to get you started:
The Vanguard FTSE Global All Cap Index Fund is a passive index fund that tracks the performance of the FTSE Global All Cap Index, an index comprised of large, mid-sized and small company shares in developed and emerging markets around the world. It is currently composed of about 7,200 holdings.
An emerging market is a country progressing towards becoming advanced, usually shown by some development in financial markets and the existence of a stock exchange and a regulatory body.
North America makes up about 63% of the companies in this index fund. Europe makes up about 15.5%, the Pacific 11%, emerging markets 10%, and other countries account for the remaining 0.5%.
The sectors in this fund include technology, consumer staples, financial services, energy, healthcare, basic materials, industrials, consumer discretionary, utilities, telecommunications, and real estate.
The top holdings in this index fund are Apple, Microsoft, Amazon, Google, Tesla, UnitedHealth, Exxon Mobil, Johnson & Johnson and NVIDIA.
For investors who want a single fund to set and forget in their portfolio, this may be an option well worth considering. It offers a vast level of diversification for a single low ongoing fee.
The five-year average performance of the Vanguard FTSE Global All Cap Index Fund based on a lump sum investment of £10,000 in February 2019 is 64.59%.
If you do not want to pick individual, sector-specific funds, this “catch-all” fund invests across the entire world. It means massive amounts of diversification and simple ongoing management for you.
The Vanguard FTSE Global All Cap Index Fund has a low ongoing charge of 0.23%, making it an attractive investment given the level of diversification on offer.
Tap the button below to buy the Vanguard FTSE Global All Cap Index Fund. Capital at risk.
The Fidelity Index World Fund is a passive index fund that tracks the performance of the MSCI World (Net Total Return) Index, a broad global equity index representing large and mid-cap equity performance across 23 developed market countries.
The fund’s investment objective is to achieve long-term capital growth by closely matching the performance of the MSCI World Index. It is currently composed of about 1,500 holdings.
The USA makes up about 70% of the companies in this index. Europe, about 5%. The UK, 5%. Emerging markets, 0.12%. Other developed countries account for the remaining 19.88%.
If you are interested in investing in a “total developed world” index fund, an index fund that tracks companies across the developed world, this might be a good option for you. The beauty of investing in a global index tracker like this one is that you get the average return on the performance of the whole developed world.
Instead of investing in a combination of an S&P 500 index tracker, a UK All Share tracker, a Europe index tracker and other developed world trackers, this one fund gives you access to all these trackers without the unnecessary admin of managing multiple index funds and paying many different ongoing charges.
The top holdings in this index fund are Apple, Microsoft, Amazon, Google, Tesla, UnitedHealth and Exxon Mobil. The sectors represented in this fund include a combination of cyclical, sensitive and defensive sectors across the developed world.
The five-year average return of the Fidelity Index World Fund P based on a lump sum investment of £10,000 in February 2019 is 79.49%. The fund has a low ongoing charge of 0.12%.
Tap the button below to buy the Fidelity Index World Fund P. Capital at risk.
The Fidelity Index Europe ex UK Index Fund is a passive fund that tracks the performance of the MSCI Europe ex UK Index. This index captures large and mid-cap companies across developed market countries in Europe, excluding the United Kingdom.
The top holdings in this fund are Nestle, ASML, Roche, LVMH Moet Hennessy Louis Vuitton, Novo Nordisk, Novartis, TotalEnergies, SAP and Siemens. While all these companies have headquarters in Europe, they operate globally, so anyone worried about the European economy can breathe easy knowing that the top holdings in this fund do not operate exclusively in Europe or the Eurozone.
The sectors represented in this fund include a combination of cyclical, sensitive and defensive sectors across Europe. This type of fund can be a good diversifier from US holdings, with the markets often performing well at different times.
The five-year average performance of the Fidelity Index Europe ex UK Index Fund based on a lump sum investment of £10,000 in February 2019 is 58.53%.
For added diversification while staying within developed economies, this Europe-focused index fund fits the bill. It can help reduce your overall portfolio volatility if you are currently heavily weighted towards US and UK stocks.
This index fund has a low ongoing charge of 0.10%.
Tap the button below to buy the Fidelity Index Europe ex UK Index Fund. Capital at risk.
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The Vanguard Global Bond Index Fund (Hedged) is a passive investment fund that tracks the performance of the Bloomberg Global Aggregate Float Adjusted and Scaled Index. It is an index of global government, government-related agencies, and corporate and securitised fixed-income investments with maturities greater than one year.
Bonds are considered to be the gold standard for safe investments, so this tracker fund is great for those looking to invest for later life. For investors looking for a defensive slant on their portfolio, bonds are a great way to keep volatility down long term. The fund includes bonds considered to be from safer governments and companies to reduce volatility.
The top holdings in this fund are Bundesrepublik Deutschland Bundesanleihe, Italy Buoni Poliennali Del Tesoro, United States Treasury Note/Bond, Spain Government Bond, French Republic Government Bond and United Kingdom Gilt.
The five-year average return of the Vanguard Global Bond Index Fund (Hedged) based on a lump sum investment of £10,000 in February 2019 is 2.35%.
If you want a simple defensive index tracker to add to your portfolio, the Vanguard Global Bond Index Fund is one of the best index funds in the UK for that purpose. The level of diversification is huge, the charges are low, and the ongoing management is simple.
This fund has an average annual charge of 0.15%.
Tap the button below to buy the Vanguard Global Bond Index Fund (Hedged). Capital at risk.
An emerging market is a country progressing towards becoming advanced, usually shown by some development in financial markets and the existence of a stock exchange and a regulatory body.
Examples of emerging markets include countries in Latin America, Asia, the Middle East and Africa. Emerging market index trackers can be a good option for those looking to be more adventurous with their investment strategy.
Below is our best emerging market index tracker:
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The iShares Emerging Markets Equity Index Fund (UK) is a passive investment fund that tracks the performance of the FTSE Emerging Index. This index measures the performance of equity securities of leading companies listed in emerging markets. The fund currently has about 1,800 holdings.
The top holdings in this fund are some names you might recognise, including Taiwan Semiconductor, Tencent, Alibaba, JD, Infosys, Vale and Reliance Industries. The top regions represented in this fund are Asia, Latin America, the Middle East and Africa, with countries such as Taiwan, China, India and Brazil. The top stock sectors represented in this fund are financial services, technology, consumer cyclical, communication services, basic materials, and industrials.
It is worth noting that this type of index fund can be much more volatile than those in developed economies, but the payoffs can also be significant.
For UK investors looking to add some higher growth holdings to their portfolio, the iShares Emerging Markets Equity Index Fund (UK) is one of the best index funds in the UK to buy now. Volatility will be a lot higher than US, UK and Europe index funds, but returns can be much greater in good years.
The five-year average performance of the iShares Emerging Markets Equity Index Fund (UK) based on a lump sum investment of £10,000 in February 2019 is 15.20%. With an ongoing charge of 0.21%, this fund may be worth considering.
Tap the button below to buy the iShares Emerging Markets Equity Index Fund (UK). Capital at risk.
The global real estate sector can be a great diversifier away from stock markets. It is not without risk, but in the long term, generally consistent income payments can mean lower levels of volatility when compared to the stock market. While the global real estate sector has seen a slowdown in recent months, there will always be a need for more housing.
Below is our best real estate index tracker:
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The iShares Environment & Low Carbon Tilt Real Estate Index Fund (UK) is a passive fund that tracks the performance of the FTSE EPRA NAREIT Developed Green Low Carbon Target Index. This index supports investors wanting to integrate sustainable investment considerations into their listed real estate portfolio.
The base universe of the index is screened against non-renewable energy, tobacco, weapons, and controversies. The remaining constituent weights are then adjusted (tilted) based on three sustainable investment considerations – green building certification, energy usage and carbon emissions.
This fund is a savvy investment for those playing the long game. The top holdings in this fund include Prologis, Equinix, Digital Realty Trust, Public Storage, Simon Property Group and Welltower. The fund is a mixture of large, mid and small-cap real estate companies and investment trusts in countries such as the United States, Japan, Hong Kong, the United Kingdom and Australia.
Property investment is an excellent addition to a portfolio heavily weighted towards stocks. It provides access to consistent income and the potential for long-term capital growth, often with lower levels of volatility than traditional stock markets. If that sounds good to you, the iShares Environment & Low Carbon Tilt Real Estate Index Fund (UK) is one of the best real estate index funds and is well worth a look.
The five-year average return of the iShares Environment & Low Carbon Tilt Real Estate Index Fund (UK) based on a lump sum investment of £10,000 in February 2019 is 1.78%.
With an ongoing charge of 0.17%, this low-cost index fund should attract anyone looking for property investment and not wanting to deal with tenants.
Tap the button below to buy the iShares Environment & Low Carbon Tilt Real Estate Index Fund (UK). Capital at risk.
An index fund is a broad portfolio of stocks or bonds in publicly listed companies that track the performance of a market index. Index funds do not look to beat the performance of an index. Instead, they aim to match it.
Index funds are passively managed, meaning their holdings are chosen based on what is in the index rather than a fund manager actively picking out which stocks to trade at any given time. While this means you miss out on the opportunity for significant market outperformance, it also eliminates the potential for major underperformance, with the side benefit of much lower fees.
When you invest in an index fund, your money is added to a pool of existing investments and then spread across companies listed in the market index. For example, an index fund for the FTSE 100 will have investments in all the companies listed on the FTSE 100. As the FTSE 100 performs well, so does the index fund. Similarly, if the index drops, the value of the fund will also fall.
There have been many instances of prominent individuals, including Warren Buffet, advising everyday investors to buy index funds instead of picking individual stocks and trying to time the market. Some have even gone as far as saying, “The single best choice for a lifelong holding is a total stock-market index fund.”
Here are a few quotes from seasoned investors and other members of the finance industry on why index funds might be the right investment strategy for you.
An ETF is an active or passive fund that can be traded (bought and sold) throughout the day on a stock exchange, like a share, whereas an index fund is a passive fund that can only be traded at a set price at the end of the trading day.
Both index funds and ETFs give investors access to a broad and diversified investment portfolio. However, ETFs are more suitable for investors who want flexibility since they trade like shares on stock exchanges, and anyone can easily buy and sell them at any time during trading hours.
When investing in index funds and ETFs, you have the option to choose a fund of either the “Income” or “Accumulation” class.
If you choose Income, you will receive regular dividend payments into your account. These dividend payments come from the companies in which the fund invests.
If you choose Accumulation, the dividends from the companies the fund invests in will be automatically reinvested into your portfolio, increasing the total value of your investments and, by extension, the price of each unit of the fund.
Most people investing to grow their money in the long term usually buy index funds of the Accumulation class.
The advantages of investing in index funds are low cost, broad diversification, transparency, ease of accessibility, and convenience.
The disadvantages of investing in index funds are lack of flexibility, inability to beat the market (in theory), tracking errors, lack of downside protection, and concentration risk.
Here are some advantages of investing in index funds:
Here are some disadvantages of investing in index funds:
When choosing an index fund, it is crucial to align the fund’s objective with your personal investment goals and risk tolerance. Look for funds that track indices representing a sector or market you believe in for the long term. Consider the fund’s expense ratio (or ongoing charges figure) and aim for lower fees to maximise returns.
Additionally, review the fund’s past performance to ensure it has a history of closely mirroring its benchmark index. It is also wise to assess the fund’s size and provider stability, as larger, well-established funds can offer more liquidity and security. Ultimately, choosing an index fund involves balancing these factors to find a fund that fits your investment strategy and financial goals.
Here are the best places to buy index funds in the UK:
Visit our comparison page for a detailed review of each index fund platform.
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