Fidelity launches top ETF list for DIY index investors

Fidelity has launched a list of its favourite exchange traded funds for those interested in low-cost tracker investing, but not sure where to start.

The 18-strong list, dubbed Select ETF, is comprised of five bond funds, three with a US mandate, two tracking UK, European, Asia & emerging markets and Global stock indices respectively, one with a Japan brief and another investing in gold. 

It joins Fidelity’s existing best active funds list, which rivals those from Hargreaves Lansdown, Interactive Investor and others. 

ETFs seldom replicate the performance of a given index to a tee because of something called tracking error 

Unlike actively-managed funds, where the portfolio manager cherry picks investments in a bid to beat the market, passive funds seek to simply replicate the performance of the index they track – nothing more. 

They don’t require a team of experts behind them, just an automated investment process, and are typically cheaper than active funds as a result. 

So there’s little point in paying extra for an index fund that does exactly the same thing as a cheaper rival. 

But there is often tracking error, the term given to a divergence in the performance of funds tracking the same stock market index.  

A number of factors can influence the size of the discrepancy such as fund charges, assets under management, share price and trading volumes. 

Fidelity says it bases its selections on using purely statistical research process which takes the aforementioned factors into account.

Select ETF will sit alongside Fidelity’s list of preferred actively managed funds called Select 50. 

Tom Stevenson, investment director for personal investing at the asset manager said: ‘We believe that Select ETF is a great entry point for those looking to invest in ETFs for themselves but with the reassurance that the investments on our lists 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’.’ 

Are ‘best in class’ fund list useful?

With the advent of the internet and DIY investment platforms, people are no longer beholden to financial advisers or investment companies to build portfolios.

But going it alone and shifting through a mass of investment opportunities to construct a well diversified fit-for-purpose portfolio can prove a daunting exercise. 

Most investment platforms have recognised this problem by putting together lists of ‘best in class’ funds that investors can use to find ideas.

These can be invaluable in helping to avoid common investing pitfalls like investing in a ‘closest tracker’ that does nothing a far simpler couldn’t do for a fraction of the cost. 

To get an idea on how the different lists compare, read our round-up.