As we move into 2026 it feels like markets have a lot of potential risks to contend with. While most asset classes have risen in value in 2025, this comes against a backdrop of increased geopolitical uncertainty, alongside stubborn inflation and weakening labour markets in the UK and the US.
With many markets hitting new highs in 2025, it’s reasonable to expect a pullback of some kind. Predicting what might cause this and where it could be felt most is no easy task. That said, just because asset prices have increased, doesn’t mean they won’t continue to increase either.
We think the best way to navigate market environments like this is to ensure investment portfolios are diversified, both across different types of asset, such as shares and bonds, but also within each of those asset classes too. Diversifying across regions, sectors and styles should help to reduce any nasty surprises from an investment portfolio.
Here we look at five ETFs that could bring diversification to an investment portfolio for 2026 and beyond.
Investing in ETFs isn’t right for everyone. Investors should only invest if the ETF’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. You should understand the specific risks and charges before investing, and make sure any new investment forms part of a diversified portfolio.
This isn’t personal advice or a recommendation to invest. Remember, all investments and any income they produce can fall as well as rise in value so you could get back less than you invested. Past performance is not a guide to future returns. If you’re not sure an investment is right for you, ask for financial advice.
Information correct as at 30 November 2025, unless otherwise stated.
As ETFs trade like shares, both a buy and sell instruction will be subject to share dealing charges within your Hargreaves Lansdown account except online in a Junior ISA.
What are ETFs?
An ETF is a basket of investments that usually includes shares or bonds. They tend to track the performance of an index like the FTSE 100 and trade like shares on stock exchanges. This means their prices fluctuate throughout the day.
Lots of ETFs use securities lending to try to generate additional returns that help pay for the costs of running them. This adds risk. Of the ETFs listed below, the Vanguard FTSE Emerging Markets ETF, Vanguard FTSE All-World High Dividend ETF and Vanguard FTSE 250 ETF all make use of securities lending.
Please note as all the ETFs below are domiciled outside of the UK, they are not normally covered by the UK Financial Services Compensation Scheme.
Global Equity – Vanguard FTSE All-World High Dividend Yield ETF
Global equities are a great place to start when thinking about investing. Broad exposure to stock markets from all over the world can be used as the starting point when building an investment portfolio. When it comes to adding diversification to an investment portfolio, including some investments that have a focus on income could be useful.
The Vanguard FTSE All-World High Dividend Yield ETF offers a low-cost solution for tracking the performance of the FTSE All-World High Dividend Yield Index.
The index is made up of large and medium-sized company stocks in developed and higher-risk emerging markets that pay dividends that are generally higher than average.
Real estate investment trusts aren’t included in the index, and neither are stocks that forecast a zero dividend over the next 12 months.
With the focus on income, there’s a high amount invested in the financial sector which makes up around a quarter of the ETF, followed by industrials and healthcare. In terms of regions, the US, Japan and UK are the three largest country weightings.
While the ETF invests most in the US, because of the focus on income, the amount invested there is less compared to other ETFs which track the FTSE All-World index. And there is less invested in areas such as technology. This potentially provides useful diversification. Investors should be aware that the amount of income paid by this ETF will vary and isn’t guaranteed.
This ETF could be used to increase the income potential from an investment portfolio, or to diversify a portfolio focused on capital growth.
Emerging Market Equity – Vanguard FTSE Emerging Markets ETF
Emerging markets are another area which can help to diversify investment portfolios beyond the most common markets..
The Vanguard FTSE Emerging Markets ETF offers a low-cost option for tracking the performance of the FTSE Emerging Index.
The ETF uses partial replication, investing in nearly all the underlying companies of the index, and in line with each company’s index weight. Companies that make up a very small part of the index are sometimes not held as they can be more difficult or expensive to buy and sell.
The index offers exposure to a range of large and medium-sized companies in emerging markets like China, India and Taiwan. These markets are higher risk because they're at an earlier stage of development. With so many different countries included in the ETF, economic or political events in any single country should have less impact on the fund’s overall value.
However, it does invest a lot in China and India, meaning that stock market performance within those two countries can have a big impact on the overall performance of the ETF.
This fund should only be considered for a portfolio with a longer investment outlook that can accept periods of lots of volatility.
This ETF could provide more growth potential to a conservatively invested portfolio or provide some diversification to a portfolio focused on developed markets.
Global Bonds – Vanguard Global Aggregate Bond ETF
Another way to add diversification to an investment portfolio is to invest in more than one type of asset. Two of the most common asset classes used in investment portfolios are shares and bonds. Therefore, a portfolio that is focussed on shares could potentially benefit from the diversification that investing in some bonds could provide.
The Vanguard Global Aggregate Bond ETF invests in a range of fixed income investments. Its benchmark, the Bloomberg Global Aggregate Float Adjusted and Scaled Index, is made up of a mixture of over 30,000 global bonds.
The index mostly includes global government bonds, while the rest invests in bonds issued by companies. These are all investment grade bonds that are considered more likely to pay off their debts than some higher-risk bonds, like high-yield bonds.
The ETF invests in around a third of the number of constituents in its benchmark, which is known as partial replication. This helps keep costs down as the ETF doesn’t buy and sell every bond that’s added to or removed from the index. The ETF also invests in higher-risk emerging markets in line with the benchmark.
The team uses currency hedging to convert overseas currency bonds back to sterling. The prices and income of global bonds can fluctuate with foreign currency movements, adding volatility for UK investors.
By hedging, investors could experience less extreme price movements over time, which helps smooth potential returns. That said, currency hedging is done through derivatives which adds risk.
This ETF could provide a different type of return and help diversify an investment portfolio that already has exposure to company shares or overseas currencies.
Gold – iShares Physical Gold ETC
Investing in the yellow metal is another way to diversify an investment portfolio. It can be difficult to predict how the price of gold will change, but this is partly why it has the potential to be a useful diversifier. It’s also something that many investors turn to during period of market stress, which means the price of gold can change differently to shares in such situations.
An element of caution is required though as the gold price has continued to hit new highs for some time. Whether these price rises will continue is unknown. While investing in gold still has the potential to diversify a broader portfolio, we think investments in a specific commodity like gold should usually only form a small part of a well-diversified investment portfolio.
The iShares Physical Gold ETC offers a low-cost option for tracking the performance of the spot price of gold, which is the current price in the marketplace at which the commodity can be bought or sold.
This ETC aims to provide exposure to physical gold and therefore represents real gold bars held in a vault. JPMorgan act as the custodian for the gold bars, ensuring it is kept in a highly secure vault in London on behalf of ETC investors.
Each ETC security has a metal entitlement which is the amount of physical gold backing it. iShares carry out daily reconciliation of the number of bars required for the ETC. The list of the metal bars in the vault are published daily on iShares.com.
UK medium sized companies - Vanguard FTSE 250 ETF
Investing away from the largest companies is another way to diversify an investment portfolio. Medium sized companies in the UK have been unloved by investors in recent years and their returns have broadly lagged their larger counterparts. Because of this, lots of medium sized companies in the UK are attractively priced compared to larger ones, which could make it a good time to invest in this part of the market.
However it’s very possible that the underperformance in recent years will continue and performance for this part of the market tends to be more volatile. Similar to investing in gold, we think any investment in this part of the market should be small and part of a well-diversified portfolio.
The Vanguard FTSE 250 ETF aims to track the performance of medium-sized companies in the UK, as measured by the FTSE 250 Index. It does this by investing in all 250 companies in the index and in the same proportion. This is known as full replication and should help the ETF track the index closely.
Financial companies make up a large part of the ETF as do companies in the industrials, consumer discretionary and real estate sectors. The companies in this ETF are smaller in size compared to those in the FTSE 100, which is the UK’s 100 largest companies. Whilst smaller companies have more room to grow than larger ones, they do carry more risk.
This ETF could provide more growth potential to a conservatively invested portfolio or provide some diversification to a portfolio focused on larger companies.