US ETFs: how to buy the best equivalent ETFs in the UK

You may well have found that your ETF searches turn up ticker symbols for US ETFs that just don’t exist on your preferred platform, or in justETF’s ETF screener. 

It’s annoying and time-consuming, and it happens because the US ETF market is much bigger than our own. You won’t be surprised to hear that there are about twice as many US-listed ETFs as there are ETFs on the London Stock Exchange. 

That wouldn’t be a problem if we Brits could buy ETFs listed on US stock exchanges, but we can’t. 

Unless you’re able to prove you’re a ‘sophisticated investor’ then practically all platforms and brokers will refuse to sell you ETFs based in the US (also known as US-domiciled or US-registered ETFs) because these products do not conform to European UCITS regulation. This piece explains why we can no longer buy US-domiciled ETFs. 

While it is possible to open an account with a US broker if you’re resident in the UK, you will still be denied US-listed ETFs (even if you’re a US citizen) because the regulation is deemed to have “extra-judicial reach”. In other words, it’s your address that counts and not the legal jurisdiction of the company that you’re dealing with. 

But there’s an easy way around the problem. You can gain exposure to the same markets using equivalent UCITS-approved ETFs. UCITS ETFs solve the issue because they:

• Invest in the same assets (equities, bonds and real estate) that are available to US investors. 
• Are freely available through UK platforms for a low cost.
• Enable you to choose between currency exposure to the dollar or to hedge your returns back to the pound in some cases.
• Are traded on the London Stock Exchange (LSE) during normal market hours. 
• Pay any applicable US taxes for you such as withholding tax.
• Typically have UK Reporting Fund Status so don’t expose you to punitive UK taxes that affect some offshore funds. 
• Conform with existing regulation and provide investors with a European-approved standard of information. 
• Don’t require a US dollar account to operate. 

Why you don’t need US-listed ETFs

While it’s true that there are more products and strategies to choose from on the other side of the pond, that’s not always a good thing, especially when those strategies are unproven or are more suitable for US-based investors. 

For example, when US investors want to focus on non-domestic, global markets they can pick ETFs that exclude US equities such as MSCI ACWI ex-US. Whereas UK investors very much want to include the huge US market in their global diversification strategy. 

Moreover, US-listed bond ETFs will typically expose UK-resident investors to the currency risk inherent in the USD: GBP exchange rate. 

You can lower your risk with a currency-hedged ETF, or a globally diversified bond ETF that may be better suited to the objectives of UK-based investors.

The big US ETF providers such as BlackRock, Vanguard and State Street are prominent in the UK and Europe, too. Inevitably, products that are successful in the US have their equivalents over here. 

Add in European ETF provider innovation and there are now over 1,000 ETF listings on the LSE alone. Europe even leads the States when it comes to sustainable investment products: both in number and assets under management. (Source: ETFGI; as of 31/12/2019).
 

US ETFs: costs

The size of the US ETF market used to mean that equivalent products in Europe were quite expensive by comparison. 

But aggressive expansion in European ETF markets means that the cost differentials are often negligible today. For example, America’s largest equity ETF is the SPDR S&P 500 ETF (SPY). Its 0.09% expense ratio is matched by the 0.09% TER of its UCITS cousin (SPY5). 

iShares Core S&P 500 ETF (IVV) costs 0.04%. Its London-listed equivalent is iShares Core S&P 500 UCITS ETF (CSPX) which costs 0.07%. 

As a US resident, you’d pay $40 annually on a $100,000 investment, while a UK resident pays £70 for a £100,000 investment. 

But the cheapest S&P 500 ETF available on the LSE is the Invesco S&P 500 UCITS ETF (SPXP) that weighs in with a TER of just 0.05%. The very cheapest S&P 500 ETF in the States has an expense ratio of 0.03%. 

It’s not worth worrying about marginal differences like this.

Moreover, competition is extremely healthy in Europe. For example, you can choose from 13 S&P 500 ETFs on the LSE offered by 9 different providers. By contrast, there are only 3 S&P 500 ETF providers competing in the US: State Street, iShares and Vanguard.
 

US ETFs: liquidity

The depth of the US market assists ETF liquidity and helps lower bid-offer spreads (or ‘bid-ask’ as they say in the States). 

This market strength used to be the source of major cost advantage and was born partly from the US’s historical head start in ETFs (which were invented in America).

But ETFs took off over here after 2008 and some European-listed ETFs now have even lower bid-offer spreads than those on US stock exchanges. The European market may be smaller overall but we have a longer tradition of fully electronic trading, plus market makers are able to increase the liquidity pool by exploiting arbitrage opportunities across the different European exchanges. 
 

How to buy US ETFs

So you’ve found the right ETF for your portfolio but it’s got a US ticker that draws a blank on your platform or justETF’s ETF screener. 

Is there an equivalent UCITS ETF available? Usually, there is. Just as America and Britain are described as two nations separated by a common language, we can transatlantically translate ETF tickers too. 

You’ll find a selection of the 60 largest and most traded US ETFs below. Their US names and tickers are listed on the left, and our pick of their LSE counterparts are listed on the right. (Source: justETF.com; as of 31/08/2020). 

The equivalent equity UCITS ETF usually follows the same index as its US-listed cousin but will often come from a different provider. 

On the bond side, you’ll find similar products with some filtering magic built into the link. Try it: