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An Exchange‑Traded Fund (ETF) is a type of investment fund that holds a collection of assets, like shares or bonds. These funds are traded on stock exchanges, and they allow you to invest in a wide range of markets or sectors through a single investment.

Think of an ETF like a hamper of investments, it contains a variety of ingredients, and by buying one unit, you get exposure to everything inside.

Read more about ETFs here

Why ETFs are popular with investors

ETFs have become one of the most popular ways to invest — and for good reason. Thanks to their low costs, diversification, and simplicity, they are the choice for many long‑term investors around the world.

Diversification, made simple

With just one ETF, you can spread your investment across dozens ‑ or even hundreds ‑of different companies or bonds. This reduces the risk of relying on the performance of a single investment and helps build a more balanced portfolio.

Low cost

ETFs tend to be cheaper to run than traditional investment funds, which often means lower annual charges for you. Many ETFs are ‘passive’, meaning they track a market index (like the FTSE 100) rather than relying on a fund manager to make decisions ‑ and that simplicity helps keep costs down.

Transparency

Most ETFs clearly show what they hold and which index they follow. They will often publish their full list of holdings every trading day, as opposed to traditional funds which report less frequently (usually monthly or quarterly). This means with ETFs, you can easily understand where your money is invested ‑whether that’s large UK companies, global technology stocks, government bonds, or something more specialised.

On the InvestEngine platform, we make this easier still with our Portfolio Lookthrough tool, which shows you every company, region and industry an ETF is invested in‑ try it out our ETF page here. 

Liquidity

Because ETFs are traded on stock exchanges, they’re generally easy to buy and sell ‑ which makes them a flexible tool for investors. At InvestEngine, while we trade ETFs once per day (rather than in real‑time) and only trade ETFs which are available on the London Stock Exchange, the underlying assets remain highly liquid and widely available.

Flexibility of choice

There are thousands of ETFs available worldwide, tracking everything from well‑known indices to specific sectors, countries, themes, or strategies. Whether you’re looking to invest in clean energy, dividend‑paying companies, or emerging markets, there’s likely an ETF that fits.

Explore our ETF range here

When investing your capital is at risk.

How ETFs Work

Most ETFs are designed to follow the performance of a specific market index, for example:

• A UK stock market ETF might track the FTSE 100, investing in the 100 largest UK companies.
• A global bond ETF could hold government or corporate bonds from around the world.
• A themed ETF might focus on renewable energy, technology, or healthcare.

Instead of trying to beat the index, these funds aim to match its performance, which keeps things simple, transparent, and cost‑effective. However performance is not guaranteed.

Are ETFs Right for Me?

ETFs are usually designed for long‑term investing. They’re popular among both beginners and experienced investors because they offer a straightforward way to access the markets.

ETFs provide an easy‑to‑understand, flexible foundation for building a portfolio.

At InvestEngine, we specialise in ETFs, offering both DIY investing (where you choose your own) and Managed Portfolios, where we build and manage your portfolio for you, using carefully selected ETFs.

We also offer a small number of Exchange Traded Commodities (ETCs) on the platform. An ETC is similar to an ETF in that it tracks an underlying index, trades with intraday liquidity on an exchange, and has full holdings transparency. However, an ETC tracks the price of a single commodity or commodity index, rather than holding a diversified basket of assets such as stocks or bonds.

Want to explore ETFs for yourself?

We offer a wide range of ETFs covering global equities, bonds, and alternative assets, all commission‑free. You can browse and compare them directly in the app or visit our ETF Investments page to learn more.

When investing your capital is at risk

Want to understand more investing terms? Visit our Investment Glossary.

Choosing an ETF (Exchange Traded Fund) might feel daunting at first, especially with so many available‑ but breaking it down into a few key questions can make the process much clearer. While we can’t offer personal investment advice at InvestEngine, we can help you understand what to consider when making your own decisions.

What does an ETF invest in?

Each ETF tracks a different index or theme. For example:

• A FTSE 100 ETF tracks the UK’s 100 largest companies.
• A global ETF might invest in hundreds of companies across different countries.
• A sector ETF could focus on areas like healthcare, clean energy, or technology.

You can explore our full range of ETFs, including filters by region, sector, asset class, and more using our Portfolio Lookthrough tool see our range here.

What are the costs?

ETFs have an ‘ongoing charge’ (also known as the ‘total expense ratio’ or TER), which covers the cost of running the fund. This is expressed as a percentage — for example, 0.20% per year.

Lower‑cost investments can mean that more of your money remains invested. Most ETFs on our platform are low‑cost, especially compared to traditional funds.

How big and liquid is the ETF?

Larger ETFs (those with more money invested in them) tend to be more liquid because they usually have higher trading volumes. This makes them easier to buy and sell. They may also track their index more closely and have lower 'bid‑ask spreads

While we place trades once per day at InvestEngine, it still helps to choose well‑established ETFs that are widely held and regularly traded, as this can help avoid delays in settling orders.

Does the ETF fit your strategy?

There’s no single ‘best’ ETF ‑ it depends on your overall investment strategy. When looking to choose ETFs to invest in it’s worth thinking about:

• What other investments you already hold
• Whether the ETF helps diversify your portfolio
• If it matches your time horizon and comfort with risk

You don’t need to pick just one, at InvestEngine, you can hold multiple ETFs to build a portfolio that reflects your goals‑ or choose a Managed Portfolio if you’d like us to do the work for you.

How is an ETF constructed?

When choosing an ETF, it’s important to understand how it’s built because this can affect everything from performance to tax efficiency and risk. 

• Dividends. One key area to check is how the ETF handles dividends. Some ETFs are accumulating, which means dividends from the underlying investments are automatically reinvested. Others are distributing, paying dividends out as income.
• Replication method. Another important factor is the ETF’s replication method — in other words, how it tracks its index. Most ETFs use physical replication, meaning they directly hold the underlying assets (like the actual shares in the S&P 500). Others use synthetic replication, relying on derivatives to match index performance. Synthetic ETFs can offer cost or tax advantages, but must manage additional counterparty risk, which requires additional due diligence before investing.
• Currency hedging. Also, consider the ETF’s currency hedging policy. Some ETFs are currency‑hedged, which helps protect returns from exchange rate fluctuations — especially useful if the ETF invests in overseas markets and you’re concerned about currency risk. Others are unhedged, which leaves your returns exposed to FX movements, for better or worse.

Still exploring?
Take your time. Use the information on our platform to compare ETFs, and read through their factsheets. Over time, your confidence will grow — and we’re here to support you every step of the way.

At InvestEngine, our DIY portfolios are designed to give you full control over how your money is invested, in a way that’s simple, low‑cost, and easy to manage.

With just a few carefully chosen ETFs, you can build your own personalised investment strategy tailored to your goals, risk level, and interests. It’s like being your own fund manager, without needing a background in finance. However, if you’re unsure about making these decisions yourself, it’s a good idea to speak with an independent financial adviser.

For a full step‑by‑step guide, including how to get the most out of your DIY investing experience, click here

Why just a few ETFs can go a long way

ETFs are a great choice because they already hold a broad mix of investments. That means you don’t need dozens of them to build a well‑balanced portfolio.

Typically people start with just 3 – 5 ETFs, each focused on a different area, for example:

• Global shares – to grow your money over time
• Bonds – to add stability and reduce risk
• Specialist ETFs – to reflect your views on areas like sustainability or tech

By selecting your own combination and setting the percentage you want in each (known as the weighting), you can shape your portfolio around your long‑term goals.

The above is for illustrative purposes only, ensure you do your own research when looking to add ETFs to your portfolio, considering your investment goals or chat to a financial advisor for further support.

Designed by you

In the investment world, many professional strategies are built by combining different funds to capture a range of opportunities and manage risk.

That’s exactly what our DIY portfolios allow you to do:

• Choose your own mix of ETFs
• Set your weightings to reflect your goals
• Automate regular contributions with our Savings Plans and 1 click portfolio rebalancing
• Keep full visibility of where your money is going

And because our platform is commission‑free, you can adjust and refine your portfolio over time without paying per trade.

Building your portfolio

Your asset allocation is the mix of asset classes (e.g. equities, bonds, cash) in your portfolio and it’s the most important decision you’ll make. It should reflect your goals, time horizon, and risk tolerance.

When determining your asset allocation, your risk tolerance, how much market volatility you can handle, matters just as much as your time horizon. Even if you’re investing for the long term, you’ll need to consider:

• How would you feel if your portfolio dropped 20% in a bad year?
• Would you be likely to stay the course, or panic‑sell?

Simple, but sophisticated

What makes building your own portfolio powerful is the simplicity:

• Low cost – ETFs are efficient and transparent
• Diversified – Each ETF gives you access to a broad market or theme
• Flexible – You’re in control of how your portfolio is built and managed

It’s a modern way to invest, using the tools of the professionals, but made accessible for everyday investors.

ETFs are popular as they’re known for being cost‑effective. But like any investment product, it’s important to understand where costs can come from, even if they aren’t always obvious.

Here’s a breakdown of the key costs you might come across when investing in ETFs through InvestEngine. Its important to note that these charges go to the ETF provider themselves and not InvestEngine.

1. Ongoing charges (Total Expense Ratio)

Every ETF has an ongoing charge‑ sometimes called the total expense ratio or TER, which covers the cost of managing the fund. It’s expressed as a percentage of your investment.

For example, if an ETF has a 0.20% ongoing charge, you’ll pay £2 per year for every £1,000 you invest. These fees are built into the ETF’s performance, so you won’t see them leave your account directly, but they do affect your returns over time.

At InvestEngine, we offer a wide range of low‑cost ETFs. You can browse and compare our ETF range here.

2. Platform Fees

• If you use a DIY Portfolio, we don’t charge any platform or trading fees, so the ETF’s ongoing charge is the only investment cost you’ll pay.
• To keep our service free, we retain the interest on any uninvested cash in your account. This reduces the potential return you could have earned on that cash, and while there’s no explicit fee, it can be viewed as an indirect cost to you.If you choose a Managed or LifePlan Portfolio, we charge a simple annual fee of 0.25%, which covers portfolio management, monitoring, and rebalancing. You can learn more about this on our Managed Portfolios page.

3. Bid‑Ask Spread

This is the small difference between the price you pay to buy an ETF and the price you’d get if you sold it immediately. It’s called the bid‑ask spread and it’s a normal part of how markets work.

ETFs that are widely traded usually have tighter spreads (i.e. a smaller difference between the buy and the sell price). While InvestEngine executes trades once per day (rather than live), we aim to secure fair pricing across all orders.

Keeping costs low

InvestEngine was built to help you get more from your investments‑ and keeping costs low is a big part of that. Our DIY platform is commission free, and we offer high‑quality, low‑cost ETFs across a wide range of markets and themes.

We don’t offer leveraged or short ETFs, as these are more complex products typically designed for short‑term trading. Our focus is on long‑term, straightforward investing, so you can build a solid portfolio with confidence.

You can see all fund fees next to each ETF on our range page here