Here are some of the best passive options in five key areas.
UK
Shaun Port, chief investment officer of Nutmeg, likes the Vanguard FTSE 100 ETF to cover the UK market.
Data from FE Analytics shows the total expense ratio (TER) on the fund is just 0.1 per cent, making it one of the cheapest investments around.
The £9.1m fund was launched only in May of this year, so some investors may want an option with a longer track record, and the Vanguard FTSE UK All Share Index – an index tracker rather than an ETF – may fit the bill.
FE’s head of research Rob Gleeson says he likes the full replication strategy of the fund, by which he means the way it buys every stock in the index instead of using synthetic methods to reproduce the returns of the smaller constituent companies.
It has a total expense ratio (TER) of 0.15 per cent, which is in part responsible for the low tracking error of just 0.4 per cent over three years – the lowest among its peers.
Performance of fund vs index over 3-yrs
Source: FE Analytics
Over that time period its volatility of 16.9 per cent is almost identical to the 16.93 per cent of the index, confirming its strong tracking ability.
This £927m fund is only open to institutions or individuals with £100,000 to invest, unless it is accessed through a platform.
North America
According to data from FE Analytics, SSgA North America Equity Tracker has the lowest tracking error of the passive funds covering the region, with a three-year figure of just 0.11 per cent.
The nearest rival, Royal London US Tracker, has a score of 2.19 per cent.
SSgA North America Equity Tracker follows the FTSE All World Developed North America index, so it does not just limit itself to the USA. It is also available through platforms.
For pure US exposure, Port picks the HSBC S&P 500 ETF, which data from FE Analytics shows has a TER of just 0.1 per cent.
The fund was launched in July 2010, and FE Analytics data shows that it has actually outperformed its index since then, returning 30.31 per cent while the benchmark has made 27.67 per cent.
Performance of fund vs index since launch
Source: FE Analytics
However, Port says it may be time to consider a more higher-risk holding in the country.
He said: "We believe that the strength of the US economic recovery is being understated and so for more adventurous investors, the iShares S&P SmallCap 600 (‘ISP6’) offers exposure to 600 small companies, which are more orientated towards a domestic recovery in the US than the large companies of the S&P 500."
The fund has a TER of 0.4 per cent, according to data from FE Analytics.
Emerging markets
Port commented: "After two years of underperformance relative to developed markets, we believe it is time to start building holdings once again in emerging markets."
"But rather than allocating to the broad range of emerging markets, we would avoid large exposure to Brazil, Russia and India, and instead focus on Asia for 2013."
"The MSCI AC Far East ETF ex Japan (‘IFFF’) from iShares offers exposure to a broad range of companies across the continent."
This fund has quite a long track record, having been launched in October 2005.
Data from FE Analytics shows it has marginally underperformed the index since then, returning 128.1 per cent against the benchmark’s 133.69 per cent.
Performance of fund vs index since launch
Source: FE Analytics
"On our measures, the Chinese and Hong Kong trades markets at valuations below that seen during the worst of the financial crisis. With Chinese growth now starting to rebound, Asia as a whole looks very attractive," Port said.
"Moreover, for investors looking for a country-specific investment, we like Indonesia (HSBC MSCI Indonesia ETF, 'HIDR')."
"With a government debt-to-GDP ratio projected by the IMF to fall to 20 per cent of GDP in 2014 and private sector credit amounting to just 30 per cent of GDP (compared with 110 per cent in Malaysia) there is fantastic potential for growth and equity returns for long-term investors."
Bonds
"For low-risk investors, bonds are an important area," Port continued. "Given the very low levels of government bond yields, we favour investing in UK corporate bonds."
"Despite continued QE, further declines in government yields are unlikely, so we invest in short-dated corporate bonds which are less vulnerable to any potential rise in gilt yields."
"The iShares Markit iBoxx £ Corporate Bond 1-5 ETF (‘IS15’) currently has an underlying yield of around 3 per cent, compared with a 1.7 per cent yield for the broad gilt market."
"For higher returns from government bonds, investors can own investments in developing government bonds though the JP Morgan $ Emerging Markets Bond fund (‘SEMB’)."
Commodities
"While China is starting to recover, we do not expect to see a sharp uplift in commodity prices. With five-year ahead oil prices anchored around $90, there seems little prospect of a sharp rise in oil prices, absent a geo-political event."
"Still, investors should consider owning physical gold as a measure of long-term portfolio insurance, through ETFs from ETF Securities and iShares."
In a recent interview with FE Trustnet, Bestinvest’s Jason Hollands highlighted the benefits of holding on to commodities, even through a market downturn.
Port cautions that investors with different objectives and risk profiles will want to add to these basics with investments tailored to their circumstances, and alter the make-up of their portfolio over time.
"It is important to stress that the asset allocation should be reviewed regularly to ensure that you are being adequately rewarded for the risks you are taking," he said.