Best Index Funds

Our selection of the leading UK index funds based on previous performance, fees and diversification

Updated: May 18, 2024
Matt Crabtree

Written By

Matt Crabtree

|
Elizabeth Anderson

Edited By

Elizabeth Anderson

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Best Index Funds

Index funds are a type of mutual fund that aim to track the performance of a market index such as the UK’s FTSE 100 or the S&P 500 in the US.

The goal of an index fund is to replicate the investment returns of its chosen index. These types of funds are passively managed, meaning fund managers are not actively selecting stocks they believe have the best potential for long-term growth.

The fund will simply aim to mirror the composition of an index.

Because index funds are diverse and low-cost due to their simplicity, they have the potential to be suitable long-term investments.

Index FundScoreDetails
1. Fidelity Index World Fund★★★★★Learn more
2. Legal & General Global Equity Index Fund ★★★★★Learn more
3. Vanguard LifeStrategy 100% Equity Fund★★★★★Learn more
4. iShares Core FTSE 100 ETF★★★★★Learn more
5. HSBC FTSE 250 Index Fund★★★★★Learn more
6. Vanguard Global Bond Index Fund★★★★★Learn more
7. Vanguard U.S Equity Index Fund★★★★Learn more
8. HSBC Japan Index (Class C) Accumulation Fund★★★★Learn more
9. iShares Emerging Markets Equity Index Fund★★★★Learn more
10. iShares Pacific Ex Japan Equity Index Fund★★★★Learn more

At a Glance, Pros and Cons of Index Funds

There are many reasons why you might choose an index fund, also known as a tracker fund. Below, we list some advantages and disadvantages of index funds.

Pros

Low price. There will always be expenses associated with your investment, and index funds are no different. But index funds in general have low fees because they offer a passive investment strategy.

Diversification. This is one of the leading reasons to have an index fund. It reduces the risk of being overexposed to a specific asset or industrial sector. While it’s very difficult to buy all of the investments that comprise an index, investing in an index fund gives you an affordable workaround.

Steady growth. Buying index funds gives you the prospect for long-term return on investment (ROI). In many ways, index funds are a way to hedge against a volatile stock market. They can offer steady growth for long-term investors who want ways to hold the value of the capital.

Popular with investors. If you want to passively buy and hold stocks but you do not want to have a financial adviser or manager, then investing in an index fund gives you a way to indirectly own shares. It’s low cost, has a good level of diversification and can offer steady growth.

Cons

Vulnerable to market crashes. Index funds are not immune to market swings or crashes. If the stock market plummets as a whole, so does the index – such as the FTSE 100 following the outbreak of Covid-19. So in some cases, strong individual stocks could perform better than the index in times of economic difficulty.

Not responsive. There isn’t a large amount of flexibility because index funds are largely a passive investment approach. So there’s not a lot of trading in and out of investments. On each side of the pendulums, this means it’s harder to take advantage of market opportunities, and harder to avoid brick walls.

Limited potential for outperformance. Because index funds track a particular market, there are limited opportunities to outperform an index. If you want the potential for high growth, an active fund may be a better choice for you.

For more inspiration, check out how to invest £100,000.

10 Leading Index Funds in 2024

Index funds replicate a particular stock or bond market. You may want to invest in just one, or choose various funds to boost diversification.

Some funds will track large companies, while others will focus on smaller companies. Or you could invest in a bond fund if you are seeking regular income or further diversification.  

Without further ado, below is our selection of some leading index funds to help with your selection.

1. Fidelity Index World Fund

The Fidelity Index World Fund aims to replicate the performance of the MSCI World index. By holding the Fidelity Index World Fund, you therefore get access to global equity markets as the fund is composed of hundreds of large and medium-sized companies worldwide.

Ongoing fees are low at 0.12%, in addition to broker fees (the platform you invest through).

The fund’s objective is to increase the value of your investment over 5 years or more.

The fund has a strong concentration on the United States, which accounts for 69.9% of its investments, and is tech-heavy. The fund’s largest single holdings are Apple, Microsoft, Alphabet (the owner of Google) and Amazon.

A potential risk could be overexposure to the US market. But overall the fund has a great track record. The fund has performed well most years since being formed in 2012. Like most funds and indices, performance suffered in 2022 but annual growth was 16.99% in 2023.

This fund’s objective is long-term growth. That means if you are looking for some diversification, or want to focus heavily on growth, this could be a great choice for you. The annual returns are impressive, but it’s the long-lasting growth and development that should essentially be the focus here. 

Income is paid quarterly through dividends. When their cash holdings get too high, the fund sometimes uses stock index futures to manage their cash. It’s worked out overall pretty well based on their return history and averages.

Pros

✔️ Designed for long-term growth

✔️ Low fees for ongoing management

✔️ Access to a wide range of popular stocks

Cons

❌ Heavily focused on the US, rather than a more diversified global spread

2. Legal & General Global Equity Index Fund

This all-stock index fund is a popular choice among investors looking for a passive fund. 

The fund invests in shares of large and medium sized companies worldwide and seeks to replicate the performance of the FTSE World Index. Its top holdings are tech companies in the US, including Apple, Microsoft, Amazon and Nvidia.

The technology sector makes up a quarter of the overall fund, followed by the consumer discretionary and financial sectors.

The annual fees are comparable to many other low-cost index funds at 0.13%.

In terms of past performance, the fund grew by 16.9% in 2023 after losing 7.8% in 2022. Growth was 22.1% in 2021 and 12% in 2020. 

Pros

✔️ Designed for long-term growth

✔️ Low minimum investment

✔️ Low ongoing fees

Cons

❌ Heavy concentration on the US, if you are looking for broader diversification

3. Vanguard LifeStrategy 100% Equity Fund

Vanguard's LifeStrategy range is popular among UK investors, particularly among those newer to investing. Your money is spread across several Vanguard passive funds along with direct shares.

The Vanguard LifeStrategy 100% equity fund invests solely in equities (shares).

It has exposure to shares of UK companies and non-UK companies (including emerging markets), but its main concentration is in the UK. 

The fund’s value grew by 13% in 2023. Many funds suffered in 2022, and the Vanguard LifeStrategy 100% equity fund was no exception – down 6% in 2022.  Growth was 19% in 2021 and 7% in 2020.

This fund is unique in how it’s built. Where most index funds have massive amounts of individual share holdings, this one is slightly different. This is a fund made up of Vanguard index funds. Some of the things you will find here are UK unit trusts, Vanguard S&P 500 funds, ETFs and emerging market funds.

The annual ongoing charge is 0.22%, plus any associated platform fees. This is higher than some index funds listed here, but is because it is actively managed.

It is an accumulation fund, because all distributions are reinvested. This means that the fund is really designed for growth, rather than income.

Pros

✔️ Unique design as a fund made up of funds

✔️ Global diversification

✔️ Potential for long-term growth

Cons

❌ Higher ongoing fee compared to most index funds

❌ Concentration on the UK market, which can be a pro or a con depending on your investment strategy

4. iShares Core FTSE 100 ETF

The iShares Core FTSE 100 is an ETF index fund, and is another great choice for investors seeking greater concentration on the UK market. 

ETFs are a little different from your traditional mutual funds, because they are traded on the stock market. This ETF gives you exposure to the 100 largest UK listed companies, and aims to reflect the performance of the FTSE 100 Index.

The FTSE 100 is the UK’s top companies that are listed on the London Stock Exchange. The iShares Core FTSE 100 fund’s largest holdings include Shell, Astrazeneca, HSBC and Unilever. Dominant sectors are non-renewable energy, pharmaceuticals and banks.

The fund grew by 7.8% in 2023 and also grew in 2022 by 4.6% – a year in which many other funds struggled.

The annual ongoing charge is very low at 0.07%.

Pros

✔️ Built up of leading companies on the London Stock Exchange

Cons

❌ High focus on the UK

5. HSBC FTSE 250 Index Fund

If you like the idea of a fund that tracks the FTSE 250 index, this is a great choice. 

The FTSE 250 index is made up of the 250 largest UK companies after the 100 largest stock market listed companies.

This fund therefore gives you access to a wide range of UK companies in a single fund. For the most part, the holdings are comprised heavily of mid-cap core companies, which is approximately 22% of the fund. Of course, those numbers can vary, but this averages as a high point in the fund most of the time. 

The financial sector is the largest sector allocation in the fund, at 35%, followed by industrials and consumer discretionary at 15%. Companies it invests in include Persimmon, easyJet and Games Workshop.

It also has a low ongoing fee of 0.37%. This is higher than some, but also lower than many. 

The benefits of this fund are the ability to get into mid-caps for a low cost, and that is what draws most people to it.

This fund has a long-term growth focus. The fund’s value grew by 8.2% in 2023, which followed losses of 2% in 2022 and growth of 18%. Of course, past performance is not indicative of future returns.

Pros

✔️ Invest in wide range of mid-cap companies

✔️ Relatively low ongoing charges

✔️ Designed for growth

Cons

❌ Fees are higher than some other passive funds

❌ Strong UK focus, which can mean less diversification

6. Vanguard Global Bond Index Fund

If you’re a more conservative investor, getting into a bond fund could be a good choice. 

These types of funds are generally used for income rather than growth, so keep that in mind. However, with this fund you can choose to reinvest dividends or withdraw them to spend or invest elsewhere.

The Vanguard Global Bond Index Fund aims to track the performance of the Bloomberg Global Aggregate Float Adjusted and Scaled Index. This includes investment-grade and government bonds from around the world with maturities greater than a year.

This is a more conservative fund, so the majority of investments are not high-risk bonds, keeping your yields as reliable as possible. The fund is given a risk rating of 3 out of 7 by Vanguard.

Some of the top holdings include US Treasury notes, French Republic Government bonds, Spain Government bonds and more.

The fund focuses on companies and governments that are more financially secure. It’s a simple strategy, and should mean a reliable source of income. As long as the governments and businesses don’t fail, your investment should be fairly sound. Returns were 6.16% in 2023, but the fund recorded negative returns of -14% in 2022 – a torrid year for investments in general thanks to global rising interest rates.

The ongoing fees within the fund are only 0.15%, which is in line with most funds like this on the market.  

Pros

✔️  Invests in government and company bonds

✔️ Low risk for those looking for more stable returns

✔️ Popular choice in the bond fund market

Cons

❌ Those looking to invest for 5, 10 or more years may be better with an equities fund

7. Vanguard U.S Equity Index Fund – Popular US Index Fund

This index fund tracks the performance of the S&P Total Market Index, offering broad exposure to large, mid and small-size companies traded on the New York Stock Exchange and the Nasdaq.

This may be your index fund of choice if you want to track major companies in the US. Like other funds we list in this article, the top holdings of Vanguard’s US Equity Index Fund are Apple, Microsoft, Amazon, Nvidia and Alphabet.

The fund is given a risk rating of 6 out of 7 by Vanguard, reflecting the fact it focuses on equities and on a single country. The obvious problem with this index fund is that it is heavily dependent on the success of US companies in the future.

You can invest in this fund through Vanguard itself, or through another platform that offers Vanguard funds. 

Ongoing charges are low at 0.10%. The fund returned 18.6% in 2023, but was down 9.66% in 2022. Returns in 2021 were 26.5%, and in general the fund has performed well over the past decade off the back of the technology boom.

Vanguard’s US Equity Index Fund could be an option for anyone wanting to invest heavily in the US.

Pros

✔️  Invest in a diverse range of US companies

✔️ Strong track record

Cons

❌ Narrow exposure to the US could be detrimental if the US economy runs into difficulties

❌ Strong focus on tech

8. HSBC Japan Index (Class C) Accumulation Fund – Index Fund for Japan

If you are looking for exposure to another country, the HSBC Japan Index fund could be worth exploring.

The fund aims to replicate the performance of the FTSE Japan Index. It invests directly in shares of all the companies that make up the index, and in the same or  similar proportions as they stand in the index. This includes the companies Toyota, Sony, Mitsubishi and SoftBank.

Japan has not been popular with investors in recent years due to weak economic growth. Despite being one of the most developed countries in the world, it has suffered from economic stagnation since the 1990s. But there are signs the tide is turning and some investors believe Japan offers good value potential. 

Annual charges for the HSBC Japan Index fund are low at 0.14%. The fund grew 15.4% in 2023, after two subsequent years where the fund was down by around 2.5%.

Pros

✔️ Exposure to a different market

✔️ Low fees

Cons

❌ As it’s concentrated on one market, the fund may have a greater risk of loss than more broadly diversified funds

9. iShares Emerging Markets Equity Index Fund

The iShares Emerging Markets Equity Index Fund aims to track the performance of the FTSE Emerging Index. It invests in a diversified portfolio of emerging-market companies with strong fundamentals and sustainable earnings growth.

The fund focuses on emerging and developed economies in Asia, and invests in a wide range of sectors, including banks, technology, software, energy and retailers. Top individual holdings in the fund include Taiwan Semiconductor, Tencent Holdings, Alibaba and Reliance Industries.

Like the majority of funds, it has been a rocky few years. The fund grew 1.89% in 2023, but its value fell by 7% in 2022 and grew by just 0.36% in 2021.

The ongoing charge is 0.19%, which is very competitive and a low-cost way to invest in dozens of companies in Asia indirectly.

Pros

✔️ Can add diversity to your portfolio

✔️ Invests in a wide range of sectors

Cons

❌  Emerging markets are more prone to greater market volatility, political, social and economic instability

❌ Investments in companies located or operating in Greater China are generally more risky than US or UK investments

10. iShares Pacific Ex Japan Equity Index Fund

This fund closely tracks the performance of the FTSE World Asia-Pacific ex-Japan Index. The fund invests directly in shares of companies in the index and invests indirectly via other equity-related investments.

The fund is currently geographically focused on developed Asian economies and Australasia. Top holdings include Taiwan Semiconductor Manufacturing, Samsung, BHP Group and Commonwealth Bank of Australia. All in all, there are more than 600 company shares held in the fund.

Performance has been reasonably good over the past few years. With the exception of 2022, the fund has grown annually over the past five years – achieving growth of 7.9% in 2023.

Annual management fees are reasonable at 0.12%.

Pros

✔️ Offers the potential to diversify to your portfolio

✔️ Invests in more than 600 companies

Cons

❌  Emerging markets are generally more sensitive to economic and political conditions than developed markets

❌  A higher level of risk

Best Index Funds – Buying Guide

This section could come in handy if you want to further unpack how index funds operate in conjunction with the top index funds. 

What are index funds?

Index funds have one purpose; they track the performance of an index. 

Pretty simple. And each index itself lists a number of stocks for companies who are high performing in that index industry, catalogue or sector. Many index funds simply follow a major index, for instance, the Dow Jones, the FTSE 100 or the S&P 500.

But certain index funds are more narrow. They may track a particular sector, such as energy, utilities or telecommunications.

Whatever its focus, it will try to represent it as a whole. These kinds of funds were developed as an approach to mitigate risks and fees that happen when you invest in individual stocks. With this approach, investors can purchase funds that basket together many companies or sectors.

An investor is therefore able to expose their money to the industry, sector or entire index with generally less risk compared to investing in individual stocks.

Of course, the reverse could be proven to be true. The credit crunch of 2008 saw hold markets plummet. The index will follow with that. So there are times when investing in strong stocks that are resistant to market crashes is a better decision than an index.

But generally, when you purchase a mutual fund or ETF, you are so diversified that there are opportunities to retain capital in a crisis.

History of index funds?

The original concept for the index fund was mocked. It did not seem feasible that just purchasing and holding the broader stock would outperform trying to pick the best-performing stocks to put your savings to work.

The first retail offering came from Bogle’s Folly in 1976. John Bogle himself was the founder of Vanguard Group and he made the 500 available for investment.

Nowadays, index funds are as accepted as fish and chips on a Saturday. There had been numerous academics and individual investors who supported the idea of index funds before John put his offering on the table for retail investors to mass adopt. Today, this passive form of portfolio making is still an underdog to active portfolio creations like mutual funds. 

Even more secret is the fact that index funds and their story began much earlier than John Bogle’s offering via the Vanguard group, which formed in 1976…

Indeed, the idea for an index fund was formed more than a decade previous, in 1960, with the University of California economist Edward Renshaw making a paper with a colleague entitled, “The Case for an Unmanaged Investment Company”.

The Paper was written with an MBA colleague, Paul Fieldstein, and was published in the Financial Analysts Journal. Ideas shared in this paper were vital for informing the first index funds.

Mr Fieldstein and Mr Renshaw analysed the investment to Tory and discovered that the mutual funds market was booming at a staggering pace. However, a large number of these funds did not actually outperform the Dow Jones Industrial Average. 

The idea occurred to the researchers that it might be useful to just aim for average returns. And by aiming for unimpressive returns that were more reliable, because of the elimination of “the cost of advisory services” from often times ill-advised investment managers, they would long term outperform many of these actively managed stock portfolios. The short paper proved to be accurate over a dozen years later.

Funnily enough, however, at the time nearly nobody paid attention. And many people discredited the very notion of the “unmanaged fund. One author labelled it “doomed to fail” because it’s not sophisticated enough and there isn’t the technology to track an index in real-time without substantial transactional fees.

A series of developments by third parties ultimately lead to the formation of Vanguard’s index fund by John Bogle. This forever changed the landscape.

How does an index fund differ from mutual funds and ETFs?

Index funds are actually a subset of mutual funds. In other words, they are a kind of mutual fund. When you invest in an index fund, you are buying access to stock performance without needing to necessarily pay management fees. By comparison, mutual funds often incur management fees because they are more active and more curated.

Because of this proactive stance that mutual funds take, they arguably have more probability and inherent capability for higher returns long-term. By comparison, index funds almost hold capital, if anything. And growth is steady as opposed to aggressive.

But how about exchange-traded funds? ETFs have a similar nature to index funds because ETFs can track indexes. The differences between the two are quite nuanced – they can be a more diversified basket of assets that not only include stocks but can include cryptos, commodities, currencies and more.

Best Index Funds: The Verdict 

When investing in index funds, the thinking is to be as diversified as possible, whether that's investing in a geographical location different to your current investments, or investing in a world tracker.

Focus on low fees, ideally of less than 0.7%, particularly if you are opting for a passive tracker fund.

Hopefully the index funds listed above will be enough to get you started. These are suggestions only, and are not advice. As always with investing, it's best to do your own research and to consider your own goals and tolerance to risk.

Some platforms will offer the chance to practice with a demo trading account.

Related Guides:

FAQs

Are index funds better than stocks?

Can I get rich from index funds?

Is the S&P 500 an index fund?

Did Vanguard invent the index fund?

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