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Making the most of exchange-traded fund opportunities

An increasing popular way to invest in 2019.

More choice is a usually good thing, but too much choice can mean you end up making no choice at all.

It's a dilemma that investors face all too regularly. Investing is about decisions, but it can sometimes seem that as soon as you've made one decision about how to invest your money, a whole load more questions spring up and you feel like you're back to square one.

You might know that you want to gain access to the returns from the stock market. You might know that it's UK companies that you want to invest in and broadly the type of investment you'll use to do it - but then you're faced with dozens of products offering to do the job. They all have similar sounding names and there's no obvious way to tell them apart.

That's particularly true with ETF - or 'exchange traded fund' - investments. These are an increasingly popular way to invest, offering simplicity and low cost, but they can be difficult for ordinary investors to research and compare.

ETFs are similar to funds in that they pool the returns of underlying assets - such as shares or bonds - into one product. They differ from funds, however, in that they are themselves traded on the stock exchange, like a share. This means they can be bought and sold easily and potentially for a lower cost.

Most ETFs are regarded as 'passive' investments where returns are expected to match a stated benchmark. They hold all the shares in a specific index or a representative sample of them, with the aim of producing returns that are as close to those from the index as possible. Others will filter shares based on a particular characteristic, such as a high level of dividend income.

They are differentiated from one another by technical characteristics that can be difficult for ordinary investors to understand, and this is the problem that Select ETF from Fidelity Personal Investing aims to tackle. Select ETF is a highly concentrated list of ETFs, carefully chosen based on research by Fidelity's investment experts within its ETF and Multi-Asset teams.

The ETFs on the list have been selected to offer exposure to mainstream stock market regions of the world - including the UK, Europe, US, Asia and emerging markets - as well as fixed income assets like bonds and alternatives like commodities. Fidelity's experts have aimed to select just the very best ETFs in each category and only include more than one choice only when a product is offering something different, such as smaller company shares or a focus on generating an income.

They compare the cost of ETFs and won't include products where much cheaper alternatives - such as a mutual fund - exist. They examine technical measures like the 'bid offer spread' - the difference between the price for buying and selling the product which can be a hidden cost for investors - as well as the 'tracking error' which shows how closely the ETF sticks to its promised benchmark.

Finally, they choose ETFs only from the most established companies where the risk of financial failure is at a minimum.

Select ETF is a great entry point for those looking to invest for themselves but with the reassurance of a limited list of options that all have our experts' seal of approval, so you know that the ETF you buy will perform the job intended and 'do what it says on the tin'.

Important Information

Please note that Select ETF is not a personal recommendation to buy ETFs. Equally, if an ETF you already own is not on the list, we’re not recommending you sell it. You must ensure that any investment you choose to invest in is suitable for your own personal circumstances. Please remember that the value of investments can go down, as well as up, so you may get back less than you invest.

Before investing into a fund, please read the relevant key information document and ‘Doing Business with Fidelity’, a document that incorporates our Client Terms.