ETF Focus List 2025 – Our top picks for the year ahead

Trump’s ‘America First’ agenda extends beyond trade. The US president has also adopted a more transactional approach to transatlantic security, threatening to withhold defence support to NATO allies that fail to increase their military spending. He has accused Europe of free-riding on American defence and has demanded that NATO members raise their defence spending target from 2% to 5% of GDP. This, coupled with the US’ reduced support for Ukraine in its ongoing war with Russia, has prompted Europe to reconsider its reliance on the US.

In a bid to strengthen military autonomy and respond to mounting pressure from President Trump for Europe to shoulder more of its own defense, the European Union unveiled the ReArm Europe plan (as known as Readiness 2030) in March 2025, a four-year €800 billion fiscal stimulus aimed at boosting European defense spending. To facilitate this, the EU intends to activate an “escape clause” in its budgetary rules, allowing member states to boost defense investments without facing penalties for breaching fiscal limits. Germany, long known for its reluctance to take on debt, has also relaxed its national fiscal rule — the “debt brake” — to permit defense spending exceeding 1% of GDP to be financed through new borrowing.

European defense companies stand to be key beneficiaries of this shift. As the EU ramps up military spending to reduce its dependence on US support, these firms are poised to benefit from accelerated procurement cycles and expanding order backlogs. This builds on an already strong growth momentum driven by heightened demand following the Russia-Ukraine war. If current budget commitments are sustained and planned expansions proceed as expected, we anticipate robust double-digit earnings growth across the sector over the next three years.

For investors looking to capitalise on this structural pivot toward European defense autonomy, we recommend the WisdomTree Europe Defence UCITS ETF (LSE:WDEF).

Xtrackers MSCI India Swap UCITS ETF (LSE:XCS5) – Our new India ETF

While we have traditionally preferred physical ETFs to avoid the counterparty risk inherent in swap-based structures, we believe swap ETFs offer distinct advantages in the context of the Indian market.

For physical India ETFs, the underlying stocks are subject to capital gain tax (CGT) when shares are redeemed by Authorised Participants and the ETF issuer sells the underlying stocks. CGT is also incurred when Indian stocks are sold during portfolio rebalancing to track the index. Short-term capital gains (from stocks held for 12 months or less) are taxed at 20%, while long-term capital gains (from stocks held for more than 12 months) are taxed at 12.5%. Since the amount of CGT depends on both the size of the gains and the holding period, investors of physical India ETFs face an uncertain tax burden, which can lead to significant underperformance relative to the index when India markets rally strongly.

To avoid this uncertainty, investors can consider a swap-based ETF like the Xtrackers MSCI India Swap UCITS ETF (LSE:XCS5). Unlike physical ETFs, XCS5 does not hold the underlying Indian securities. Instead, it enters into swap agreements with counterparties that deliver the full return of the MSCI India Index —including dividends—in exchange for a fixed swap fee. This fee is transparent, providing a level of cost certainty not possible with physical India ETFs. For XCS5, the swap fee has been reduced to 57 basis points (bps) for the April 2025–April 2026 period, down from 89bps the year before.

Additionally, XCS5 also features a significantly lower expense ratio of 0.19%, compared to 0.65% for the iShares MSCI India UCITS ETF (LSE: NDIA), which we previously recommended.

For these reasons, we are changing our recommended ETF for India from NDIA to XCS5.

Understandably, investors may be concerned about counterparty risk—the possibility that the counterparties to the swap agreements could default on their obligations. This  is mitigated through XCS5’s engagement with multiple high-quality counterparties, including Barclays, Société Générale, BNP Paribas, and Goldman Sachs. Moreover, the swaps are marked to market daily, and collateral is posted to fully offset any potential losses. This mechanism, mandated by the European Market Infrastructure Regulation (EMIR), ensures that net counterparty exposure is effectively reduced to zero.

Nonetheless, for investors who remain uncomfortable with counterparty risk, NDIA remains a solid alternative.

Related article: Looking to save on withholding taxes? Here’s how you can do it with ETFs.

iShares MSCI EM Latin America UCITS ETF (LSE:DLTM) – Our new Latin America ETF

We are changing our recommended ETF for Latin America from iShares Latin America 40 ETF (NYSE:ILF) to iShares MSCI EM Latin America UCITS ETF (LSE:DLTM). This change is driven by DLTM’s lower expense ratio of 0.20% compared to ILF’s 0.48%, with the former having a slightly better tracking difference as well.

Furthermore, as an Irish-domiciled ETF, DLTM is only subject to 15% withholding tax on dividends whereas ILF is subject to 30% as it is domiciled in the US. Withholding tax savings is particularly important for Latin America ETFs as they generally tend to pay out high dividends of around 5-6%. In fact, the trailing 12-month dividend yield of DLTM rose from 4.56% in end April 2024 to a one year high of 5.79% on 3 January 2025.

It is worth noting that ILF and DLTM track different indexes. ILF tracks the S&P Latin America 40 Index, which comprises 40 of the largest Latin American equities across Brazil, Chile, Columbia, Mexico, and Peru. In contrast, DLTM tracks the MSCI EM Latin America 10/40 Index, offering exposure to both large- and mid-cap companies across the same countries. Despite these differences, both ETFs are highly similar in terms of geographic and sector allocations.

Table 2: Key differences between iShares Latin America 40 ETF and iShares MSCI EM Latin America UCITS ETF

Other key changes to the list 

Removals

We have removed Brazil, Indonesia, Thailand, and Vietnam from Single Market due to limited investor interest. However, those still seeking exposure can consider regional ETFs such as the iShares MSCI EM Latin America UCITS ETF (LSE:DLTM) for Brazil and the Global X FTSE Southeast Asia ETF (NYSE:ASEA) for Indonesia and Thailand.

Additions

Under Core Equity (US), we have added the SPDR S&P 500 UCITS ETF (LSE:SPYL) as an additional option for investors seeking S&P 500 exposure on the London Stock Exchange.

Alongside our existing REIT recommendation—the NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX:CFA)—we are also recommending the Lion-Phillip S-REIT ETF (SGX:CLR) for investors who prefer more targeted exposure to Singapore REITs over broader regional REITs. Like CFA, CLR is also eligible for Supplementary Retirement Scheme (SRS) investments.

Changes

Under Regional Equity, we have renamed “Emerging South East Asia” to “South East Asia” to offer a more inclusive representation of the region. Our previous recommendation for EM SEA - the Premia Dow Jones EM ASEAN Titans 100 ETF (HKEX:9810) does not have exposure to Singapore, which is one of our new Asian Tigers. On top of that, 9810 continues to struggle with low liquidity despite having been incepted nearly seven years ago (Table 3).

For these reasons we have decided to replace it with the Global X FTSE Southeast Asia ETF (NYSE:ASEA), despite its higher expense ratio.

Table 3: Comparison between 9810 and ASEA

For Fixed Income, we have merged the US and Global categories to reflect the fact that global fixed income funds typically have significant US exposure. As such, we have removed the SPDR Bloomberg U.S. Aggregate Bond UCITS ETF (LSE:USAG) from our focus list, while retaining the iShares Core Global Aggregate Bond UCITS ETF USD (Dist) (LSE:AGGG) under the newly named “Global Investment Grade” category.

For the same reason, we have also renamed “US High Yield” to “Global High Yield”, with no change to our recommended ETF for the category.

Table 4: Summary of changes to the 2025 ETF Focus List

A starting point for your investment journey 

The objective of our ETF Focus List is to serve as a starting point for investors by zeroing in on the best-in-class ETFs from the vast number of options available on our platform.

While ETFs are not the only investment products that investors can select for their portfolios, they still serve as great investment tools for gaining diversified exposure to markets at a low cost.

As for the ETFs which have been removed or replaced, investors who are holding on to them should not be worried as they remain viable investment options. They will also continue to be available under the Regular Savings Plan (RSP), along with the new additions.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.