ETFs provide low-cost diversification for ISAs

ETFs provide low-cost exposure to a range of diversified asset classes for ISA investors seeking to obtain returns in a low interest rate environment, says Barclays Stockbrokers.

The firm's head of Investments Barbara-Ann King says investors need more diversified portfolios and access to different asset classes in order to respond effectively to the rapidly changing markets.

She says: "Investments such as Exchange-Traded Funds provide instant diversification and low cost access to markets and indices, including many emerging markets. Exchange-Traded Commodities offer the opportunity to move away from stock market exposure to take a view on, for example, gold, base metals or oil."

She adds those investors seeking income could consider Real Estate Investment Trusts (REITs) offering access to the commercial property market, or ETFs providing returns linked to equity income.

King says investors are continuing to shelter their savings in ISAs, while the trend towards investing in Stocks and Shares ISAs will likely increase, moving into the next tax year.

The firm says since the Stocks and Shares ISA allowance was increased from £7,200 to £10,200 for those aged 50 or over, around three-quarters of eligible investors have taken, or are seeking to take advantage of their increased tax-free allowance before the end of this tax year.