≡ Menu

How to unitize your portfolio

Learn how to unitize your portfolio

Why would you want to unitize your portfolio? I mean life is short – and there’s a lot of good stuff on Netflix.

Well… maybe you’re a stock picker who wonders whether you’re beating the market?

Or perhaps you’re a passive investor keen to see how the returns from your DIY ETF portfolio compares to Vanguard’s LifeStrategy fund?

Whatever the motivation, you’ll need to track your performance versus active and index funds to know for sure.

And that means comparing your results calculated using the same methodology that they use – portfolio unitization or time-weighted returns.

If you think you’re a great investor but really you’re lagging the market by 3% a year, it will have a disastrous impact on your wealth compared to if you’d used index funds.

That’s not to mention the many hours wasted in fruitless research. (Unless you happen to enjoy it…)

Still want to know how you’re doing?

How to unitize your portfolio to track your returns

I believe the best way to track your returns is to unitize your portfolio.

Granted, you can use online portfolio tools or work out various numbers on-demand. But I think it’s better to take charge for yourself so you understand not just the numbers, but what is driving those numbers.

Moreover, it’s easy to do. You don’t have to pay a monthly subscription fee, nor worry about losing your data when that aging app is discontinued. 

To make it even easier we’ve created a unitized / time-weighted return spreadsheet to help you on your way.

Spread the word! You’ll find our example spreadsheet makes more sense after you’ve read the article that follows. But for now know there are two tabs – one to track cashflows and the other to track capital values and units. We’ve pre-populated the cells to illustrate how somebody might be tracking the ups and downs of their portfolio over a few years – as the market climbs and they add new money, receive dividends, and decide to withdraw some cash. Make a copy of the spreadsheet to delete our example data and start tracking your own.

What is unitization?

Unitization is the method used by fund managers who must account for money that flows in and out of their open-ended funds.

And because it’s the industry standard method for measuring returns, unitization means you can compare your performance with any existing fund.

You can also compare a unitized portfolio’s performance against a benchmark such as an index.

And unitization encourages you to keep decent records – also important if you’re trying not to kid yourself.

As physicist Richard Feynman warned: “The first principle is that you must not fool yourself, and you are the easiest person to fool.”

Why open-ended funds are called unit trusts

You are probably already familiar with unit pricing when it comes to funds.

If not, here’s a quick refresher.

When you invest your money into an open-ended fund, you buy a certain amount of units in that fund with your money.

For instance, let’s say I have £18,420.58 invested in the European Index Trust run by Fictitious Fund Co (FFC).

The FFC website tells me how it calculates this:

Number of units I own: 6,564.712
Unit price Buy/Sell: 280.6p/280.6p
Value: £18,420.58 (i.e. 280.6 pence x 6,564.712 units)

All investors in FFC’s European index fund would see exactly the same unit price.

However they will own different numbers of units, depending on how much they have invested.

Making more units

Whenever investors put additional money into the European Index Trust, FFC creates new units at the prevailing unit price.

The new money buys the right number of units at that price for the money invested.

For example, if the unit price were 280.6p, then investing £5,000 would buy you 1,781.9 additional units.

The new cash you’ve invested now comprises part of the assets of the unit trust, which offsets the creation of those new units.

The fund’s total Assets under Management (AUM) have increased, but the returns haven’t changed just because new money has been added. This is confirmed by the unchanged unit pricing.

Finally, the fund manager deploys your extra money to buy more holdings in order to keep the fund doing what it says on the tin.

In this example, he or she buys more shares to match the European Index.

Unit prices and new money

The crucial point is that adding new money does not change the price of a unit.

Only gains and losses on investments, dividends and interest, and costs that are charged against the portfolio’s assets will change the price of a unit.

For example, if the companies owned by the European Index fund rose 10% in value, then the unit price would be expected to increase by 10%, too.

So here the new unit cost would be:

280.6*1.1 = 308.66p.

Measuring changes in the value of units like this – as opposed to measuring the total monetary size of the fund – enables the manager to maintain a consistent record of performance.

A record that is not distorted by money coming in and going out.

Also, when an investor wants to cash out from the fund, there’s no confusion about what percentage of the assets they own or anything like that.

They’ll own a certain number of units. To cash out, they sell them back to the fund manager at the prevailing unit price.

For instance, let’s say you own 600 units.

At 280.6p per unit, you’d cash out with:

£2.806 x 600 = £1,683.60

By unitizing your portfolio, you can use the same principle to measure your own returns – whether you’re saving and investing extra cash or you’re withdrawing money from the portfolio.

How to unitize your portfolio

So far, so boring.

Well, we are talking about accountancy here!

I’ll level with you. Things aren’t going to get any more exciting.

However the good news is that unitizing your portfolio is a very straightforward process. 

1. First decide on an arbitrary unit value

The first thing you need to do is to decide what one unit in ‘your fund’ is worth.

It’s a totally arbitrary decision, as it will just be used as the base for future return calculations.

Many people choose £1.

I chose £100 for egomaniacal reasons.

2. Calculate how many units you currently have

As it’s Year Zero for unitizing your returns, you need to work out how many units you currently have.

This is based on the total value of everything in the portfolio you’re tracking, together with the unit value you just came up with.

You simply divide the former by the latter.

Let’s say your portfolio is £50,000 and your unit value is £100.

This means you have 500 units to begin with, like so:

£50,000/£100 = 500 units

Create a column on your spreadsheet to track the unit number. 

Pop in another column to track the value of each unit:

£50,000/500 units = £100 unit value. Think of this column as the index value of your portfolio. It starts at 100 points. 

As time goes on, you can chart your progress by plotting your (hopefully) growing unit/index values on a graph. (See the Portfolio unit value column on our accompanying spreadsheet.)

I track these numbers on my own spreadsheet. It tells me what my portfolio is worth right now, what one unit is worth, and how many units I have.

From this it also works out and tells me my returns over various periods.

3. If you don’t add new money you can now easily track your returns

Let’s say you never did add or remove another penny from your portfolio.

You know how many units you have, and you know the starting unit value.

Working out your unitized returns from here is a doddle.

For example, let’s say your portfolio increases to £60,000.

The unit value is now:

£60,000/500 = £120

Your return to-date is the change in unit value.

£120-£100/£100 = 20%

However you hardly needed to unitize to see that!

4. Adjust your total units as you add new money

The whole point of unitizing is to properly take into account money added or removed from the portfolio.

Every time you add new money, you need to calculate and take note of the value of one unit.

For instance, let’s say that when your portfolio hits £60,000 you decide this investing lark is a piece of cake, and so decide to add in another £6,000.

The unit value before the additional cash is added, as above, is £120.

Now we need to calculate how many units our new money buys:

New money added / unit cost = number of new units
£6,000/ £120 = 50 new units

This means your £66,000 portfolio now comprises 550 units.

You can see this calculation in our dummy spreadsheet. The new £6,000 is inputted into the Cashflow tab, and you can see the extra 50 units show up on the Unitized return tab – Unit change column. 

5. Keeping ‘buying’ new units as you add money

This process is simply repeated over your investing lifetime.

Let’s say the value of your portfolio increases to £69,850, and you decide to add an ISA contribution of £15,240.

First:

Unit value = portfolio value / number of units
Unit value = £69,850/550
And so…
Unit value = £127

Number of new units that £15,240 buys:

New money added/ unit cost = number of new units
£15,240/£127 = 120 new units

With the new ISA money your portfolio is now worth £85,090, and is comprised of 670 units (that is, 550+120).

As always you note down the total unit number for next time.

6. What happens when you remove some money?

When money is removed entirely from the portfolio, the principle is exactly the same as when money as added. The number of units changes as a consequence, but not the unit value.

You are effectively ‘selling’ units in your own fund to free up the cash. Obviously this procedure doesn’t change the returns you have achieved on the mix of assets you happen to hold.

For example, let’s say your portfolio continues to motor on and breaks through six figures to hit £100,165.

At this point you get collywobbles (I told you there was a downside to tracking your returns) and you decide to spend £10,000 of it while you’ve still got your teeth.

You know from your records that your portfolio currently consists of 670 units.

This means the unit value currently is:

£100,165/670= £149.50

You decide to remove £10,016.50 from the portfolio to keep the sums simple:

£10,016.50/£149.50 = 67 units

After the withdrawal you have £90,148.50 in your portfolio represented by 603 units (670-67).

The sale is noted in the Withdrawals column of our spreadsheet in the Cashflow tab. The liquidated units are tracked in the Unitized return tab. 

7. Work out your unitized return at any point

At any moment in time you can see exactly what your return is by looking at your unit value.

For instance, let’s say that after all of the above, your portfolio ends the year with a value of £90,450.

Your unit value is:

£90,450/603= £150

So your unitized return since you unitized your portfolio is:

£150-£100/£100 = 50%

This is the return that you can compare with trackers and other funds and benchmarks that report their returns over the same period.

Let’s say at the end of next year a unit was worth £160.

You started the period with a unit value of £150. So your return over the year is:

£160-150/150= 6.67%

You see how easy it is to calculate and note down your annual return figures every year.

What about expenses?

If you cover costs like broker fees, stamp duty, and accrued interest with external money that you add to your investment account, then these amounts should be included in your incoming cashflows. 

The treatment is different if you pay your costs by selling assets, or if you use dividends, or other cash lying around the portfolio.

In the latter case, the expenditure is taken care of by a reduction in your portfolio’s value. You needn’t even note when these costs are paid. Your portfolio will simply be smaller than otherwise next time you record its value. If all prices remained the same then you’d see that a small loss had been inflicted by the fees.

As ever, fees reduce returns and higher costs are a greater drag factor than lower ones. 

What about dividends, interest, redemptions, spin-offs, and so on?

You needn’t worry about these so long as they’re retained within your portfolio. 

The number of units you own doesn’t change because you were paid a dividend – no more than if one of your shares went up by 20p.

But your units do now represent more assets, in the form of that extra dividend cash. That increases the value of each of your units.

You can see this play out in the dummy spreadsheet when the portfolio receives £3,000 worth of dividends on 1 January 2026. (Yes, this is Doctor Who’s portfolio.) 

The unit value rises from 160 to 164.98 and the portfolio gains 3.11%. 

However, if you withdraw any of this income from your investment account then it should be logged as an outflow. 

Our sample spreadsheet books a £1,000 dividend withdrawal on 2 Jan 2026. The value of the portfolio decreases but it doesn’t count as a loss because the number of units is reduced to compensate. 

Hmm, unitization sounds like a lot of work

It’s really not, once you’ve set it up properly.

My spreadsheet tells me my current portfolio and unit value at any time.

A sheet also tracks money added and subtracted over the year, and calculates the number of units added or subtracted when I do so. They get added to the ongoing tally.

At the end of the year I simply record all the relevant values for my records. (I also export a snapshot of the spreadsheet as a PDF to serve as an archive).

Then, on the first trading day of the New Year, I hand-update the spreadsheet with my starting unit value and the total number of units.

This makes it easy to see and record my discrete total return figures for every year.

What if I have multiple dealing accounts, SIPPs, and the like?

I track all my different holdings on one spreadsheet.

Then I unitize the returns on this entire portfolio, and also track expenses, portfolio turnover, and other interesting figures across the entire piece. If you take monthly snapshots you can track your volatility, too. 

This is exactly how I measure my own total returns across half a dozen different platforms and brokers.

There’s not a lot of point in tracking the returns in a SIPP separately from returns in an ISA, in my view.

Ultimately it’s all your net worth. They’re just different baskets.

However if you did want to track how particular accounts are doing – perhaps because you employ different investing strategies in one versus another – then you could create separate spreadsheets to follow them.

You’d also have to track separate money flows in and out of each them, and generate unitized return figures for each ‘pot’ of cash.

Remember, you’d still want to unitize the entire portfolio to properly track your overall returns. (Rather than, say, averaging the returns on the different accounts, as this would not account for the different amount of money in each – though you could create a weighted average I suppose).

Time-weighted returns versus money-weighted returns

There are many different ways of calculating returns. They all have value in different circumstances. And they usually deliver different numbers.

Unitization offers a time-weighted return while the main alternative uses the XIRR Excel function to calculate your money-weighted return. 

  • Time-weighted returns – all time periods are weighted equally, irrespective of how much money is invested when. Unitization tells you the underlying investment performance, and strips out the impact of money flowing in and out. This is the best way to compare your results against other portfolios, funds, indices, and even rival assets like cash in the bank or the price of Bitcoin.  
  • Money-weighted returns – this means that time periods in which more money is invested have more of an impact on the overall return than equivalent time periods in which less money is invested. So doubling your first £50 does not count for as much as doubling £500,000 does later on.  

Monevator reader John Hill’s excellent comment below sheds additional light on the two measures with some illuminating examples. 

Getting the measure of market timing

XIRR calculates the Annualised Internal Rate of Return on a portfolio. The gist is that you supply the XIRR function with a column in your spreadsheet that lists these cash additions and withdrawals. The function then uses an iterative process to hone in on your returns.

It makes sense for the fund industry to use unitization. That’s because a fund manager typically has no control over when money is added or removed from their fund – it comes from the fund’s customers – and also because it’s the choice and performance of the underlying assets that matters when evaluating how skilful a manager is. (That’s the same reason I unitize my returns).

However some would argue that a money-weighted return like XIRR makes more sense from the perspective of a private investor. You are in control of money flows and what matters to you is your personal rate of return.

Many private investors derail their results with poor market timing. But by calculating and comparing both the unitized return and a money-weighted return you can spot the impact of poor (or – who knows – maybe good) market decisions timing on your portfolio.

The Henry Wirth investing blog explains:

  • If your money-weighted return rate is greater than your time-weighted return rate, then your market timing is adding value to your portfolio.
  • If your time-weighted return rate is greater than your money-weighted return rate, then your market timing is subtracting value from your portfolio.

The Accumulator tracks both. Read his companion post on how to calculate your money-weighted return

Do it for yourself

Personally I think if you’re going to keep track of the money flows in and out of your account, then you might as well go the whole hog and unitize your portfolio.

Once you’ve setup a spreadsheet to do the sums it’s very easy to stay on top of things. Moreover you’ll have the satisfaction of knowing your returns are directly comparable with those reported by fund managers.

That’s not to say there’s a right or wrong way to measure returns.

It all depends on context, and on knowing what you’re measuring and why.

Also remember that in itself a return figure tells you nothing about the volatility or risk you took to get those returns. Nor about the maximum troughs (aka drawdown, or losses at the portfolio level) that you endured along the way.

But if you unitize your portfolio and keep records of, say, the daily unit price, then you can track that sort of thing for yourself if you’re so inclined.

Indeed, once you’ve unitized your portfolio, you can go crazy if you want to and use it as the basis for calculating all kinds of extra stuff – such as the Sharpe Ratio that might help you understand if your returns are down to skill or risk taking.

Who knows – if you’re young and feisty, maybe you could even include your unitized returns in your cover letter asking for a job with Ficticious Fund Co!

Credit to The Accumulator for the unitization spreadsheet he made to accompany this update. Many thanks TA! Please let him know if you spot any errors via the comments below… 😉

{ 104 comments }

Weekend reading: Bitcoin’s $100,000 question

Weekend Reading logo

What caught my eye this week.

While the world potentially inched closer to World War 3 this week, Bitcoin fans had a more exciting horizon in mind. One where their love-hate digital asset finally boasted a six-figure price tag.

Some $133m spent in election lobbying says Donald Trump will be a crypto-friendly president. Bitcoin was already having one of its bursts of enthusiasm, but Trump’s reelection was a lift-off moment:

Similarly, the then-imminent approval in the US of Bitcoin ETFs in early 2024 we talked about in January got this rally started. But any snapshot of a super-volatile asset like Bitcoin only tells half the story.

For instance Bitcoin’s price has more than doubled since February 2021, when I made the case for even sensible investors holding 1-5% in a diversified portfolio.

Great – but not long after that article Bitcoin lost around three-quarters of its value in a peak-to-trough fall that bottomed out in early 2023.

Or go back further in the Monevator archives and you’ll find me suggesting Bitcoin was probably in a bubble in December 2017. By some fluke that post did roughly coincide with a peak. The Bitcoin price went on to again slump 75%, this time to under $4,000.

But of course the price is now up five-fold since that particular bubble-frenzy. So the smart – or strategically dumb – move was arguably to hold – I mean HODL – throughout.

Fortunately my 2017 article was very open-handed about where Bitcoin could go next. Amid much prevarication I wrote:

A price collapse wouldn’t necessarily mean the end of bitcoin or blockchain, any more than the bursting of the Dotcom boom halted the Internet.

Bitcoin could go on to be a household name for the rest of our lives, something we all might use. Perhaps it is the future of currencies?

Maybe it is a new store of value?

Seven years later I’d say almost the same thing.

True, as I’ve written before I think the longer Bitcoin lasts the longer it will last. There’s a self-reinforcing quality to every climb out of the dumpster. So I judge it to be in a much stronger position than 2017.

All the same, this latest mania looks bubbly once again.

Some coins are gonna make it more than others

MicroStrategy is a poster child for the current Bitcoin bullishness. Founder and Bitcoin evangalist Michael Saylor has basically turned his software company into a Bitcoin fund with a side hustle in writing code.

It’s been an incredibly profitable strategy. MicroStrategy shares are up nearly 2,700% over the last five years alone. Approximately none of that is due to it selling software licenses.

MicroStrategy now has about $33bn worth of Bitcoin on the balance sheet. But as I tweeted on Thursday, the trouble is the market prices MicroStrategy’s stash at nearer $300,000 than $100,000.

Commenting on Bluesky:

For once the world listened. Yes, the very next day Microstrategy shares had cratered to under $400!

Okay, or ‘perhaps’ it was actually an announcement by the infamous short-seller Citron Research that it was betting against the stock that sent the shares south.

Citron’s position is the same as mine – no argument in particular here with Bitcoin, but no sensible reason why MicroStrategy’s coins should be worth three-times everyone else’s.

Adding to the personal drama for me, I actually own a little bit of MicroStrategy! Indeed I began the year with a fairly decent chunk, as a proxy for betting on the post-ETF approval Bitcoin price. But I’ve sold it down as the price has climbed throughout 2024.

Which – to be clear for anyone who struggles with graphs – was not the way to maximise my gains.

Number goes up. Right?

Anyway, MicroStrategy fanboys have an explanation for the to-me crazy premium on the stock, which Jack Raines summarises on Sherwood as:

Think about it like this: if MicroStrategy holds ~$30 billion in bitcoin and the company’s worth ~$100 billion, by issuing $1 billion in convertible debt (or equity) to buy bitcoin, its bitcoin holdings increase by ~3% while equity is only diluted by ~1%.

Buying pressure sends the price of bitcoin higher, MicroStrategy’s stock continues to increase as bitcoin grows more valuable, and the cycle repeats.

The crypto bros are calling this a ‘money glitch’. You don’t have to search hard to find Tweets and even videos where they claim this ‘perpetual money machine’ could be the solution to everything from student debt to solving the government deficit.

I know…

Anyway, older hands like me call it a ‘roll-up’.

And there’s nothing new about selling your own highly rated equity to buy low-rated stuff that gets re-rated on your balance sheet.

Sometimes it works for a long time and the roller-upper is able to eventually transition into creating enduring value. (e.g. Think companies like Constellation or WPP or even Berkshire Hathaway at a push).

But very often it blows up. (Numerous UK small-caps over the years, or the Valeant roll-up that caught hedge fund manager Bill Ackman out.)

Time will tell with MicroStrategy. But I hope Saylor is being very careful with its debt, because the one thing we know about Bitcoin is that the price does not move in a straight line.

Who’s zooming who

Monevator favourite Cullen Roche did a good job of explaining why MicroStrategy’s, um, strategy is both brilliant – you can’t argue with Saylor’s returns – and something that will only work until it doesn’t:

To some degree it’s all very Ponzi-like. MSTR is selling bonds to fund purchases of BTC and those purchases help drive the price of BTC up which allows MSTR to finance more bonds.

It’s magnificently brilliant as long as the price of BTC keeps going up. As long as it keeps going up.

Many things can be true at once.

You can believe that Bitcoin has established itself as a long-term asset, and still think the price looks frothy.

You can salute MicroStrategy’s lucrative capital allocation policy while believing it’s sitting on a box of nitroglycerine.

And you can think Trump will be good for crypto while wondering whether he’ll (reliably) be this good.

Heck, you can think Bitcoin is a resource-burning scam for dupes while still profiting from trading it.

As Finumus wrote in his excellent Moguls piece this week:

I’ve learnt not to let my beliefs get in the way of a profit.

Alas UK regulators are letting their beliefs get in the way of UK investors making a profit.

I have mostly owned MicroStrategy because as a UK investor I can’t buy a Bitcoin ETF in my ISA due to what seems to me an arbitrary decision not to approve such ETFs for retail investors in the UK.

(And let’s face it, with capital gains tax going the way it has, Bitcoin holdings kept outside of ISAs are now pregnant with gains headed to HMRC…)

Yet the same UK regulators enable us to buy triple-levered ETFs – on MicroStrategy no less – on some platforms.

And of course we’re free to buy Bitcoin outside of tax shelters.

I fail to see a consistent logic.

Too hard to HODL

The total value of all Bitcoin is currently around $2 trillion. While I don’t entirely dismiss that figure ending up closer to zero, I also think it’s very plausible that – on the ‘store of value’ thesis – that Bitcoin’s total value could eventually match gold’s ‘market cap’, which is was around $17 trillion last time I looked.

If that happens then the UK’s current regulations could cost Britain hundreds of billions if we collectively under-own Bitcoin as a result.

Finally, to be clear, all the environmental worries about Bitcoin remain legitimate concerns, the crypto space still feels over-hyped and under-necessary, and nobody needs to own any Bitcoin if they don’t want to.

Many things can be true at once.

Have a great weekend.

[continue reading…]

{ 47 comments }

A speculative education [Members]

Moguls logo

“To make money they didn’t have and didn’t need, they risked what they did have and did need. That is foolish.”
– Warren Buffett (on Long-Term Capital Management)

Journey back with me through time to the home of a young Finumus. Peeking in through the sitting room window, we find the little scamp working at the family dining table.

This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.
{ 26 comments }

Low-cost index funds UK

Low-cost index funds will help you save money

This is our list of low-cost index funds and ETFs that’s kept updated to enable investors to find the cheapest index trackers available in the UK.

You can select from these funds to build a diversified portfolio that – as part of a passive investing strategy – will help you achieve your investing objectives.

We focus on value and cost in this list because crushing charges is a core component of wise investing. Every pound you save in fees is a pound that snowballs over the years – speeding you towards your financial goals.

Our piece on management fees explains how even small savings add up to a big difference.

The growing recognition of the importance of investment fees has driven explosive growth in low-cost index funds and Exchange Traded Funds (ETFs) over the past 20 years.

We believe these two types of index tracker are the best value investment vehicles available in the UK and the right choice for passive investors.

Low-cost index funds UK – the Total Cost of Ownership

Our cheapest tracker fund UK list is divided into the key sub-asset classes you may wish to invest in.

The picks per asset class are ranked by their Total Cost of Ownership (TCO).

The TCO is the sum of a fund’s transaction costs and its Ongoing Charge Figure (OCF).

Many outlets will only highlight a fund’s OCF (or Total Expense Ratio). But that misses out a significant chunk of cost embodied by its less well-publicised transaction cost figure.

Transaction costs are the fees and taxes that all investment funds inevitably incur when trading their underlying assets.

We think it’s important to include transaction costs when considering your shortlist. Such charges can rival the OCF in some of the sub-asset classes.

Note: fund costs are a complex and confusing area so we’ve got a few more notes about fees after the main list below.

Note II: we’ve also included the cheapest ESG option for each asset class.

Let’s go hunt for bargains!

Global equity – developed world and emerging markets (All-World)

Cheapest

  • SPDR MSCI ACWI ETF (ACWI) TCO 0.12% (OCF 0.12%, Transaction 0%)

Next best

  • HSBC FTSE All-World Index Fund C (GB00BMJJJF91) TCO 0.15% (OCF 0.13%, Transaction 0.02%)
  • SPDR MSCI ACWI IMI ETF (IMID) TCO 0.18% (OCF 0.17%, Transaction 0.01%)
  • Invesco FTSE All-World ETF (FWRG) TCO 0.18% (OCF 0.15%, Transaction 0.03%)
  • iShares MSCI ACWI ETF (SSAC) TCO 0.2% (OCF 0.2%, Transaction 0%)
  • Vanguard ESG Global All Cap ETF (V3AB) TCO 0.26% (OCF 0.24%, Transaction 0.02%)

World equity – developed world only

Cheapest

  • UBS (Irl) ETF – MSCI World (WRDA) TCO 0.1% (OCF 0.1%, Transaction 0%)

Next best

  • iShares Developed World Index Fund D (IE00BD0NCL49) TCO 0.12% (OCF 0.12%, Transaction 0%)
  • SPDR MSCI World ETF (SWLD) TCO 0.12% (OCF 0.12%, Transaction 0%)
  • Fidelity Index World Fund P (GB00BJS8SJ34) TCO 0.12% (OCF 0.12%, Transaction 0%)
  • Franklin FTSE Developed World ETF (DWLD) TCO 0.12% (OCF 0.09%, Transaction 0.03%)
  • iShares Developed World Fossil Fuel Screened Index Fund (GB00BFK3MT61) TCO 0.13% (OCF 0.12%, Transaction 0.01%)

World ex-UK equity

Cheapest

  • Vanguard FTSE Dev World ex-UK Equity Index Fund (GB00B59G4Q73) TCO 0.15% (OCF 0.14%, Transaction 0.01%)

Next best

  • L&G International Index Trust I Fund (GB00B2Q6HW61) TCO 0.16% (OCF 0.13%, Transaction 0.03%)
  • Aviva Investors International Index Tracking SC2 Fund (GB00B2NRNX53) TCO 0.25% (OCF 0.25%, Transaction 0%)

You can also pick ‘n’ mix using individual US, Europe ex-UK, Japan, and Pacific ex-Japan trackers.

World ex-US equity

Cheapest

  • Xtrackers MSCI World ex-USA ETF (XMWX) TCO 0.16% (OCF 0.15%, Transaction 0.01%)

World income equity

Cheapest

  • Xtrackers MSCI World High Dividend Yield ESG ETF (XZDW) TCO 0.25% (OCF 0.25%, Transaction 0%)

Next best

  • Vanguard FTSE All-World High Dividend Yield ETF (VHYG) TCO 0.32% (OCF 0.29%, Transaction 0.03%)
  • iShares MSCI World Quality Dividend ESG ETF (WQDS) TCO 0.41% (OCF 0.38%, Transaction 0.03%)
  • WisdomTree Global Quality Dividend Growth ETF (GGRG) TCO 0.42% (OCF 0.38%, Transaction 0.04%)
  • Vanguard Global Equity Income Fund (GB00BZ82ZW98) TCO 0.56% (OCF 0.48%, Transaction 0.08%)

The Vanguard fund is active but gives you a non-ETF option.

World small cap equity

Cheapest

  • UBS (Irl) ETF – MSCI World Small Cap Socially Responsible (WSCR) TCO 0.24% (OCF 0.23%, Transaction 0.01%)

Next best

  • HSBC MSCI World Small Cap ESG ETF (HWSS) TCO 0.27% (OCF 0.25%, Transaction 0.02%)
  • Vanguard Global Small-Cap Index Fund (IE00B3X1NT05) TCO 0.34% (OCF 0.3%, Transaction 0.04%)
  • iShares MSCI World Small Cap ETF (WLDS) TCO 0.36% (OCF 0.35%, Transaction 0.01%)

US large cap equity

Cheapest

  • SPDR S&P 500 ETF (SPXL) TCO 0.03% (OCF 0.03%, Transaction 0%)

Next best

  • Lyxor Core US Equity ETF (LCUS) TCO 0.04% (OCF 0.04%, Transaction 0%)
  • JPMorgan BetaBuilders US Equity ETF (BBSU) TCO 0.04% (OCF 0.04%, Transaction 0%)
  • Amundi S&P 500 II ETF (SP5L) TCO 0.05% (OCF 0.05%, Transaction 0%)
  • L&G US Equity ETF (LGUG) TCO 0.05% (OCF 0.05%, Transaction 0%)
  • iShares S&P 500 ETF (I500) TCO 0.06% (OCF 0.06%, Transaction 0%)
  • iShares US Equity Index Fund D (GB00B5VRGY09) TCO 0.06% (OCF 0.05%, Transaction 0.01%)
  • HSBC American Index Fund C (GB00B80QG615) TCO 0.06% (OCF 0.06%, Transaction 0%)
  • Fidelity Index US Fund P (GB00BJS8SH10) TCO 0.06% (OCF 0.06%, Transaction 0%)
  • iShares US Equity ESG Index Fund D (GB00BN090C90) TCO 0.07% (OCF 0.05%, Transaction 0.02%)

The tax treatment of US equities gives synthetic ETFs a tax advantage over physical funds. Find out more in our Best S&P500 ETFs and index funds article.

UK large cap equity

Cheapest

  • iShares UK Equity Index Fund D (GB00B7C44X99) TCO 0.08% (OCF 0.05%, Transaction 0.03%)

Next best

  • Fidelity Index UK Fund P (GB00BJS8SF95) TCO 0.09% (OCF 0.06%, Transaction 0.03%)
  • Vanguard FTSE UK All Share Index Unit Trust (GB00B3X7QG63) TCO 0.11% (OCF 0.06%, Transaction 0.05%)
  • HSBC FTSE All Share Index Fund Institutional (GB0030334345) TCO 0.15% (OCF 0.1%, Transaction 0.05%)
  • iShares UK Equity ESG Index Fund D (GB00BN08ZV03) TCO 0.18% (OCF 0.05%, Transaction 0.13%)
  • SPDR FTSE UK All Share ETF (FTAL) TCO 0.23% (OCF 0.2%, Transaction 0.03%)
  • Amundi UK Equity All Cap ETF (LCUK) TCO 0.25% (OCF 0.04%, Transaction 0.21%)

UK equity income

Cheapest

  • Vanguard FTSE UK Equity Income Index Fund (GB00B59G4H82) TCO 0.26% (OCF 0.14%, Transaction 0.12%)

Next best

  • L&G Quality Equity Dividends ESG Exclusions UK ETF (LDUK) TCO 0.43% (OCF 0.25%, Transaction 0.18%)
  • SPDR S&P UK Dividend Aristocrats ETF (UKDV) TCO 0.48% (OCF 0.3%, Transaction 0.18%)

Emerging markets equity

Cheapest

  • Amundi MSCI Emerging Markets ETF (LEMA) TCO 0.14% (OCF 0.14%, Transaction 0%)

Next best

  • Northern Trust Emerging Markets Custom ESG Equity Index Fund (IE00BJ0X8418) TCO 0.19% (OCF 0.18%, Transaction 0.01%)
  • HSBC MSCI Emerging Markets ETF (HMEC) TCO 0.19% (OCF 0.15%, Transaction 0.04%)
  • Fidelity Index Emerging Markets Fund P (GB00BHZK8D21) TCO 0.21% (OCF 0.2%, Transaction 0.01%)
  • Amundi Index MSCI Emerging Markets SRI PAB ETF (AMEG) TCO 0.24% (OCF 0.16%, Transaction 0.08%)

Property – global

Cheapest

  • VanEck Global Real Estate ETF (TREG) TCO 0.25% (OCF 0.25%, Transaction 0%)
  • L&G Global Real Estate Dividend Index Fund I (GB00BYW7CN38) TCO 0.25% (OCF 0.22%, Transaction 0.03%)

Next best

  • HSBC ETF FTSE EPRA/NAREIT Developed ETF (HPRS) TCO 0.28% (OCF 0.24%, Transaction 0.04%)
  • iShares Environment & Low Carbon Tilt Real Estate Index Fund D (GB00B5BFJG71) TCO 0.3% (OCF 0.18%, Transaction 0.12%)
  • Amundi ETF FTSE EPRA/NAREIT Global ETF (EPRA) TCO 0.31% (OCF 0.24%, Transaction 0.07%)

Multi-factor – global

Cheapest

  • JPMorgan Global Equity Multi-Factor ETF (JPLG) TCO 0.2% (OCF 0.19%, Transaction 0.01%)

Next best

  • Invesco Global ex UK Enhanced Index Fund Z (GB00BZ8GWT74) TCO 0.31% (OCF 0.23%, Transaction 0.08%)
  • Franklin Global Equity SRI ETF (FLXG) TCO 0.34% (OCF 0.32%, Transaction 0.02%)
  • Invesco Quantitative Strategies ESG Global Equity Multi-Factor ETF (IQSA) TCO 0.38% (OCF 0.3%, Transaction 0.08%)
  • HSBC Multi-Factor Worldwide Equity ETF (HWWA) TCO 0.4% (OCF 0.25%, Transaction 0.15%)
  • Amundi ETF Global Equity Multi Smart Allocation Scientific Beta ETF (SMRU) TCO 0.42% (OCF 0.4%, Transaction 0.02%)

Factor investing is effectively straying into active management territory. You hope that your chosen subset of the market can outperform. The important thing is to choose products underpinned by sound financial theory, a verifiable set of rules, and a commitment to low costs.

Regional ETFs are available. But we’ve stuck to global multi-factor low-cost index funds for broad diversification.

Money market – GBP

Cheapest

  • Lyxor Smart Overnight Return ETF (CSH2) TCO 0.09% (OCF 0.09%, Transaction 0%)

Next best

  • BlackRock ICS Sterling Liquidity Fund (IE00B43FT809) TCO 0.1% (OCF 0.08%, Transaction 0.02%)
  • Fidelity Cash Fund (GB00BQRGFD05) TCO 0.1% (OCF 0.1%, Transaction 0%)
  • Royal London Short Term Money Market (GB00B8XYYQ86) TCO 0.1% (OCF 0.1%, Transaction 0%)
  • Xtrackers GBP Overnight Rate Swap ETF (XSTR) TCO 0.1% (OCF 0.1%, Transaction 0%)

Money market funds are actively managed.

UK Government bonds – intermediate

Cheapest

  • Invesco UK Gilts ETF (GLTA) TCO 0.06% (OCF 0.06%, Transaction 0%)

Next best

  • iShares GiltTrak Index Fund (IE00BD0NC250) TCO 0.08% (OCF 0.08%, Transaction 0%)
  • iShares Core UK Gilts ETF (IGLT) TCO 0.08% (OCF 0.07%, Transaction 0.01%)
  • Fidelity Index UK Gilt Fund P (GB00BMQ57G79) TCO 0.1% (OCF 0.1%, Transaction 0%)
  • Amundi UK Government Bond ETF (GILS) TCO 0.11% (OCF 0.05%, Transaction 0.06%)

UK Government bonds – long

Cheapest

  • iShares Over 15 Years Gilts Index Fund (GB00BF338G29) TCO 0.15% (OCF 0.15%, Transaction 0%)

Next best

  • SPDR Bloomberg Barclays 15+ Year Gilt ETF (GLTL) TCO 0.16% (OCF 0.15%, Transaction 0.01%)
  • Vanguard UK Long-Duration Gilt Index Fund (GB00B4M89245) TCO 0.17% (OCF 0.12%, Transaction 0.05%)

UK Government bonds – short

Cheapest

  • L&G UK Gilt 0-5 Year ETF (UKG5) TCO 0.06% (OCF 0.06%, Transaction 0%)
  • Invesco UK Gilt 1-5 Year ETF (GLT5) TCO 0.06% (OCF 0.06%, Transaction 0%)

Next best

  • iShares UK Gilts 0-5 ETF (IGLS) TCO 0.07% (OCF 0.07%, Transaction 0%)
  • JPMorgan BetaBuilders UK Gilt 1-5 yr ETF (JG15) TCO 0.1% (OCF 0.07%, Transaction 0.03%)
  • Amundi UK Government Bond 0-5Y ETF (GIL5) TCO 0.14% (OCF 0.05%, Transaction 0.09%)
  • iShares Up to 10 Years Gilts Index Fund (GB00BN091C65) TCO 0.15% (OCF 0.15%, Transaction 0%)

UK Government bonds – index-linked

Cheapest

  • L&G All Stocks Index Linked Gilt Index Trust C (GB00BG0QNY41) TCO 0.08% (OCF 0.08%, Transaction 0%)

Next best

  • Amundi UK Government Inflation-Linked Bond ETF (GILI) TCO 0.11% (OCF 0.07%, Transaction 0.04%)
  • iShares Index Linked Gilt Index Fund D (GB00B83RVT96) TCO 0.11% (OCF 0.11%, Transaction 0%)
  • iShares Up to 10 Years Index Linked Gilt Index Fund D (GB00BN091H11) TCO 0.13% (OCF 0.13%, Transaction 0%)

UK index-linked funds may not be suitable for your portfolio due to embedded real interest risk. We switched in our Slow and Steady portfolio to a short duration global index-linked fund, hedged to GBP. For those, see below.

The iShares Up to 10 Years Index Linked Gilt Index Fund is relatively new but the best inflation-hedge from the selection above as it’s the shortest duration GBP linker fund available.

Global inflation-linked bonds hedged to £ – short

Cheapest

  • Abrdn Short Dated Global Inflation-Linked Bond Tracker Fund B (GB00BGMK1733) TCO 0.12% (OCF 0.12%, Transaction 0%)

Next best

  • Amundi Global Inflation-Linked 1-10Y Bond ETF (GISG) TCO 0.2% (OCF 0.2%, Transaction 0%)
  • Royal London Short Duration Global Index Linked Fund M (GB00BD050F05) TCO 0.27% (OCF 0.27%, Transaction 0%)

The Royal London fund is actively managed.

Global government bonds hedged to £

Cheapest

  • Abrdn Global Government Bond Tracker Fund B (GB00BK80KQ76) TCO 0.14% (OCF 0.14%, Transaction 0%)

Next best

  • UBS JP Morgan Global Government ESG Liquid Bond ETF (EGOG) TCO 0.18% (OCF 0.18%, Transaction 0%)
  • iShares Overseas Government Bond Index Fund D (GB00BN091P94) TCO 0.18% (OCF 0.13%, Transaction 0.05%)
  • Amundi Index JP Morgan GBI Global Govies ETF (GOVG) TCO 0.21% (OCF 0.15%, Transaction 0.06%)

Gold

Cheapest

  • Amundi Physical Gold ETC (GLDA) TCO 0.12% (OCF 0.12%, Transaction 0%)
  • Invesco Physical Gold A ETC (SGLP) TCO 0.12% (OCF 0.12%, Transaction 0%)
  • WisdomTree Core Physical Gold ETC (GLDW) TCO 0.12% (OCF 0.12%, Transaction 0%)
  • Xtrackers IE Physical Gold ETC (XGDU) TCO 0.12% (OCF 0.12%, Transaction 0%)
  • iShares Physical Gold ETC (SGLN) TCO 0.12% (OCF 0.12%, Transaction 0%)

Gold trackers are Exchange Traded Commodities (ETCs). These are functionally index trackers like ETFs, only they’re focused on commodities investing.

Broad commodities

Cheapest

  • Xtrackers Bloomberg Commodity Swap ETF (XCMC) TCO 0.19% (OCF 0.19%, Transaction 0%)

Next best

  • L&G All Commodities ETF (BCOM) TCO 0.21% (OCF 0.16%, Transaction 0.05%)
  • iShares Diversified Commodity Swap ETF (COMM) TCO 0.25% (OCF 0.19%, Transaction 0.06%)
  • WisdomTree Broad Commodities ETF (COMX) TCO 0.29% (OCF 0.19%, Transaction 0.1%)
  • Invesco Bloomberg Commodity ETF (CMOP) TCO 0.34% (OCF 0.19%, Transaction 0.15%)
  • L&G Longer Dated All Commodities ETF (CMFP) TCO 0.34% (OCF 0.3%, Transaction 0.04%)
  • iShares Bloomberg Enhanced Roll Yield Commodity Swap ETF (ROLL) TCO 0.34% (OCF 0.28%, Transaction 0.06%)
  • UBS (Irl) ETF CMCI Composite SF (UC15) TCO 0.34% (OCF 0.34%, Transaction 0%)

We’ve written a much more nuanced take on choosing a commodities ETF. Sometimes cheapest isn’t best.

Using our cheapest index funds UK list

You can precisely identify the low-cost index funds you want to research via the ISIN codes or ETF tickers shown in our list in brackets. (We’ve previously explained how fund names work.)

We’ve given the code for the GBP-priced accumulation fund flavour where available. Income distributing versions are also usually offered. Make sure you understand the ins and outs of accumulation vs income funds.

Also note:

  • We’ve included an Environmental, Social, and Governance (ESG) index tracker option for each sub asset-class where available.
  • Actively managed funds are featured when low-cost index funds are not available. Active funds are noted in the relevant sections.
  • We don’t show platform exclusive index trackers. They’re generally not a good deal overall.

Cheap index trackers and costs – extra detail

The bid-offer spread is an additional cost you may incur that isn’t captured by the TCO figure above.

This charge shouldn’t be significant for most passive investors anyway1 but you can gauge it by using the estimated spread published by Hargreaves Lansdown on its fund pages.

The final significant investing cost you’ll need to pay are broker fees. We track those on our broker comparison table.

Watch out for FX fees charged by brokers on certain funds. This is a stealth cost that’s quite avoidable.

Some providers of synthetic ETFs publish a ‘swap fee’ on top of the TER. Just add the swap fee to the TER to get the Ongoing Charge Figure. This is how we’ve treated swap fees in the listing above.

It’s worth knowing that a fund’s transaction costs can fluctuate quite a lot from period to period, especially if there’s excessive turnover in the fund’s index. So don’t feel like you instantly need to switch if your fund’s transaction costs suddenly spike.

Keep your fund and its main rivals under review for up to a year before coming to any definitive conclusions about its competitiveness.

Some index trackers register negative transaction costs, but I’ve disregarded that from the TCO calculations above. That’s because negative transaction costs amount to an accounting technique that’s not sustainable over time.

Low-cost index funds UK – fees you can ignore

Don’t pay any attention to a fund’s Annual Management Charge (AMC). The AMC is an old-fashioned fee metric that excludes important fund costs. This is why a fund’s AMC is typically lower than its OCF or TER.

Do not add the AMC to the OCF or TER.

The OCF and TER are interchangeable, however, so choose one of those costs (the highest) and add it to the fund’s transaction cost to calculate its TCO.

Treat negative transaction costs as zero.

Ignore entry and exit charges for index trackers where you see them mentioned in fund literature such as Key Investor Information Documents. Such fees do not apply to ordinary investors like you and me. They are levied on institutional participants dealing directly with the fund provider.

The same thing goes if you see an eye-watering minimum purchase figure (such as £100,000) to buy into a fund.

Be guided by your broker’s minimum purchase amount.

Final thoughts on low-cost index funds and ETFs

There’s often little to distinguish index trackers that are closely matched in price. However we have written a few pieces to help you resolve tie-breaker situations:

If you’re looking for the cheapest place to buy and hold your low-cost index funds then do take a gander at our broker comparison table.

Our article on designing your own asset allocation will help you construct your portfolio. If you want a quick shortcut, you could do a lot worse than checking out our best multi-asset fund picks for an instant portfolio solution.

We update this list periodically. Quoted TCOs may date, as fund groups fight their turf wars by undercutting each other (hurrah!) but this article should still prove an excellent starting point for your research.

If anyone comes across any better index tracker options then please shout in the comments below.

Take it steady,

The Accumulator

Note: Early comments below may refer to an older collection of low-cost index trackers. Scroll down for the latest thoughts.

  1. Wide spreads are more typically an issue with individual company shares. []
{ 990 comments }