3 low-cost ETFs to consider for your ISA

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Two traders looking at stock market screens

With just a week to go before the annual ISA deadline, it's still not too late to consider taking advantage of any remaining ISA allowance you have. If you're not sure on which stocks to buy, then consider investing in these exchange traded funds (ETFs).

FTSE 100

Stocks are the cornerstone of almost every investment portfolio, and almost every UK investor has at least some exposure to the FTSE 100 Index. It is, after all, the UK's most watched stock market indicator. With a combined market value of around £2trn, FTSE 100 companies account for roughly 80% of the entire market capitalisation of the London Stock Exchange.

Investing in the FTSE 100 gives you a great deal of exposure to the UK economy, but it also has a lot of international exposure too. That's because more than 75% of the revenues from FTSE 100 companies actually comes from overseas. Also, being packed with multinationals making most of their earnings in foreign currencies means the index has benefited from the acute weakness of sterling seen in the wake of the Brexit vote of last June.

With an Ongoing Charges Figure (OCF) of only 0.07%, the iShares Core FTSE 100 UCITS ETF(LSE: ISF) is one of the cheapest funds which track the performance of the FTSE 100 Index.

European exposure

Although the US stock market has outshone European equities in recent years, I think the performance of European stocks could catch up in the coming months. European stocks are, on average, relatively cheap, with a cyclically adjusted price to earnings (CAPE) ratio of around 17, compared to 28 for US stocks.

For exposure to European equities, I reckon the db x-trackers Euro Stoxx 50® UCITS ETF (LSE: XESX) is a great choice. The ETF tracks the performance of the 50 largest companies in the eurozone and benefits from very low costs -- its OCF is just 0.09%.

Smart-beta

For investors who aren't so keen to track broad market indexes, smart-beta ETFs may offer many of the benefits of active management but at much lower cost.

Unlike most traditional passive ETFs, such as the two mentioned above, which follow stock market indexes that give larger companies a proportionately bigger slice of the index, smart-beta ETFs follow a different kind of index, in which stock weights are based on other factors, such as volatility, momentum, value or dividend yield. As such, smart-beta ETFs track tailor-made indexes which attempt to beat the market.

In this space, I'm currently interested in the Vanguard Global Minimum Volatility UCITS ETF(LSE: VMVL). It's a relatively new fund, which uses a quantitative model to select stocks based on their individual volatility levels and diversification characteristics. Thus, its goal is to produce a portfolio which delivers less volatility and better risk adjusted returns compared to the global equity market.

Vanguard's smart-beta fund has an OCF of 0.22%, which isn't much more expensive than the cheapest ETFs on the market today. However, the OCF does not include portfolio transaction costs incurred by the fund, and these transaction costs will most likely be higher for this fund, as it requires periodic re-balancing to ensure less volatile stocks receive larger weightings.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.