What are the cheapest ways to track global markets?

One of the biggest investing trends over the past decade has been the rise of passive funds, either via exchange-traded funds (ETFs) or open-ended index funds. 

In fact 29 of the 50 most-bought funds in the final three months of 2024 were passive, with investors drawn to strong returns and low fees. 

Below, we examine some of the ways to invest passively in global markets via interactive investor.

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United Kingdom

The FTSE 100 is one of the most recognisable indices in the world. As a result, investors can find several very cheap ETFs tracking the index. For instance, both iShares Core FTSE 100 ETF (LSE:ISF) and HSBC FTSE 100 ETF (LSE:HUKX) charge just 0.07% a year. 

However, as cheap as these ETFs are, they are not actually the cheapest way to access the UK market with an ETF. The Amundi UK Equity All Cap ETF (LSE:LCUK) charges just 0.04%, making it one of the cheapest ETFs available to UK investors.

LCUK does not track the FTSE 100, but the Morningstar UK Index, which is slightly different. Whereas the FTSE 100 is the largest 100 companies listed in the UK, the Morningstar index has more than 300 constituents, giving it both large- and mid-cap exposure.

However, the two indices are not that different in practice. Both indices have similar top 10 weightings, and the sheer size of the largest holdings in the Morningstar index crowd out its additional smaller holdings.

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The second-cheapest ETF is the L&G UK Equity ETF (LSE:LGUK), with a charge of just 0.05%. 

For non-large cap UK exposure, the cheapest in terms of fees is Amundi Prime UK Mid & Small Cap ETF (LSE:PRUK), which costs 0.05%. 

Open-ended passive funds can also be very competitive. Tracking the 600 shares in the FTSE All-Share, iShares UK Equity Index costs just 0.05% and Fidelity Index UK costs 0.6.%.

Vanguard's FTSE 100 Index Unit Trust and FTSE UK All-Share Index Unit trust also both cost 0.06%. 

United States

The cheapest way to gain passive exposure to US stocks is via Super 60 rated ETF SPDR S&P 500 ETF USD Acc GBP (LSE:SPXL). It costs just 0.03% and was only launched in November 2023. Its ultra-low fee and large asset manager behind it, State Street, earned it a place on our rated list this year. 

The next cheapest ETFs for the US market are the Invesco MSCI USA ETF (LSE:MXUS) and Invesco S&P 500 ETF (LSE:SPXP), with both charging just 0.05%. These are the two cheapest ways to gain exposure to either the S&P 500 or the MSCI USA Index.

Three open-ended funds also stand out for value: iShares US Equity Index (costing 0.05% to track the FTSE USA Index which has 545 holdings in it), Fidelity Index US (0.06% to track the S&P 500) and HSBC American Index (0.07% to also track the S&P 500). 

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As has often been noted, there can be slight differences between indices. The S&P 500 has strict and unique inclusion requirements compared to other indices, with stocks required to be profitable over a certain period of time. The index also has a selection committee, which makes discretionary judgements about inclusion.

The popular Vanguard S&P 500 UCITS ETF (LSE:VUSA) and iShares Core S&P 500 ETF (LSE:CSP1) charge 0.07%.

Europe

Passive exposure to Europe is not straightforward, as there is not singular definition of what “Europe” actually is.

Two of the cheapest ways to gain European exposure are via the Invesco EURO STOXX 50 ETF (LSE:SX5S) or the HSBC EURO STOXX 50 ETF (LSE:H50E). Both charge just 0.05%.

These two ETFs will give you exposure to the EURO STOXX 50 index. It tracks the 50 biggest stocks from the 11 countries in the eurozone – that is, countries that use the euro. As a result, the index is dominated by France and Germany. Also accounting for a reasonable share are the Netherlands, Italy and Spain.

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Just as cheap is the Amundi Prime Europe ETF (LSE:PRIE). This ETF tracks the Solactive GBS Developed Markets Europe Large & Mid Cap Europe Index for 0.05%.

Another option is Amundi Stoxx Europe 600 ETF C GBP (LSE:MEUD)This ETF charges 0.07% and tracks the STOXX EUROPE 600 index. Not only is this index larger than the EURO STOXX 50, it is also not restricted to just eurozone markets. As a result, it has around 20% exposure to the UK and 15% to Switzerland.

Cheap open-ended options include HSBC European Index (0.06% to track the FTSE Developed Europe ex UK index) and iShares Continental European Equity Index (0.06% to track the FTSE World Europe ex UK Index). Both have more than 400 shares in them. 

Global

For those seeking global exposure, one of the cheapest options is the L&G Global Equity ETF (LSE:LGGL), which charges 0.1%. This ETF tracks the Solactive Core Developed Markets Large and Mid Cap Index.

Slightly more expensive is the SPDR MSCI World ETF GBP (LSE:SWLD). It tracks the MSCI World Index, composed of around 1,500 companies across 23 developed markets, for 0.12%.

This ETF from giant US fund group State Street earned a spot on our Super 60 rated list this year, displacing iShares Core MSCI World ETF USD Acc GBP (LSE:SWDA), which tracks the same index for a 0.2% fee. Since shared data begins in early 2019, the SPDR ETF has returned 1 percentage point more than the iShares ETF. 

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The Amundi MSCI World V ETF Acc GBP (LSE:LCWL) also uses this index and also costs just 0.12%. Another option is the Vanguard FTSE Dev World ETF (LSE:VEVE). This ETF also charges 0.12% and tracks the very similar FTSE Developed World Index.

Fidelity Index World also costs 0.12% to track the MSCI World index. This is an open-ended fund, not an ETF.

Open-ended L&G International Index Trust and L&G Global Equity Index track the FTSE World ex UK and FTSE World index for just 0.13% in fees. They both own around 2,500 developed-world shares, with the former excluding UK shares. 

For those who want their global exposure to also include emerging markets, the funds can be slightly more expensive. For example, there is the iShares MSCI ACWI ETF USD Acc GBP (LSE:SSAC), which charges 0.2%. Alternatively, the Vanguard FTSE All-World ETF USD Acc GBP (LSE:VWRP) charges a slightly higher 0.22%. 

However, HSBC FTSE All World Index costs just 0.13% and does include 7% in emerging market shares. 

Emerging markets

Generally, it is more expensive to track emerging market as the underlying indices are less-frequently traded and composed of less-liquid stocks.

However, that is not to say exposure cannot be achieved at a reasonable price. The Amundi MSCI Emerging Markets II ETF Dist GBP (LSE:E127) is the cheapest, with an ongoing charge of 0.14%. Next there is the HSBC MSCI Emerg Mkts ETF GBP (LSE:HMEF), charging 0.15%. Both track the MSCI Emerging Market index, composed of around 1,400 large- and mid-cap stocks.

For the same ongoing charge, investors can also access emerging market shares without China. The Amundi MSCI Emerging Market Ex China ETF (LSE:EMXC) charges 0.15%.

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There is also the iShares Core MSCI EM IMI ETF USD Acc GBP (LSE:EMIM), which charges 0.18%. It tracks the MSCI Emerging Markets Investable Market Index. In contrast to the other index, this one also includes small-cap stocks, giving it just over 3,000 constituents. There is also an ESG-screened version of this ETF for the same fee; the iShares MSCI EM IMI ESG Scrn ETF USD Acc GBP (LSE:SEGM)

Two competitively priced open-ended funds are iShares Emerging Markets Equity Index (0.19% fee) and Fidelity Index Emerging Markets (0.20% fee). They track the FTSE Emerging Index and MSCI Emerging Market Index, owning 2,025 and 1,299 shares respectively. 

China

As noted, China dominates the emerging market index. However, for those who specifically want China exposure, there are several competitively priced ETFs.

The cheapest is the Franklin FTSE China UCITS ETF (LSE:FRCH) with an ongoing charge of 0.19%. The ETF tracks the FTSE China 30/18 Capped Index. This index is composed of around 900 Chinese companies. The largest positions are Tencent Holdings Ltd (SEHK:700) (12%) and Alibaba Group Holding Ltd ADR (NYSE:BABA) (8.5%). 

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The second-cheapest China focused ETF is a whole 10 basis points more, with theAmundi MSCI China ETF Acc (LSE:LCCN), charging 0.29%. This ETF tracks the MSCI China Index.

Asia-Pacific

For the broader Asia-Pacific region, the cheapest option is the L&G Asia Pacific ex Japan Equity ETF GBP (LSE:LGAG), which has a charge of 0.10%. This ETF tracks the Solactive Core Developed Markets Pacific ex Japan Large & Mid Cap Index. Its biggest weighting is Australia, accounting for just over 60%, followed by Hong Kong at about 15%.

The next cheapest is the Vanguard FTSE Dev AsiaPac exJpnETFUSDAcc GBP (LSE:VDPG), for 0.15%. This tracks a slightly different index, the FTSE Developed Asia Pacific ex Japan index. Australia is still the biggest holding, accounting for around 50%. This is followed by Korean equities, at around 30%.

An open-ended alternative is iShares Pacific ex Japan Equity Index, at 0.12% in fees, as well as Fidelity Index Pacific ex Japan, at 0.13%. They track FTSE and MSCI indices, owning 620 and 103 shares. 

Japan

Active funds are often viewed by investors as a more favourable route for Japan exposure. However, Japan is one of the most efficient markets in the world, so investors might want to consider passive exposure. If they do, there are several reasonably priced options.

The cheapest is the iShares Japan Equity Index, at 0.08% in fees to track the FTSE Japan Index. This index currently contains 493 shares, ranked by their market capitalisation. 

It's followed by Xtrackers Nikkei 225 ETF (LSE:XDJP), which charges just 0.09%, and tracks the famous Nikkei 225. This index is price-weighted, not market-capitalisation weighted. This means that the trading price of a stock determines how much of the index it makes up.

According to most investors, this method is inferior to a market-capitalisation weighting, in which the proportion that each company represents in the index is the result of its share price multiplied by the number of shares in circulation.

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For just one basis point more, investors can buy a market-cap weighted ETF, the L&G Japan Equity ETF GBP (LSE:LGJG). This ETF charges 0.10% to track the Solactive Core Japan Large & Mid Cap Index, which is supposed to give exposure to large- and mid-cap publicly traded Japanese companies, with some ESG screening.

There is also the Amundi MSCI Japan ETF GBP (LSE:LCJP), which tracks the MSCI Japan index for 0.12%, as well as the open-ended HSBC Japan Index, which tracks the FTSE Japan index for 0.13% in annual fees.