iShares UK Dividend ETF: May 2025 update

• BlackRock has managed index portfolios since 1971

• This ETF invests in UK companies with leading dividend yields

• It’s tracked the FTSE UK Dividend+ Index closely since it launched in 2005

How it fits in a portfolio

An ETF is a basket of investments that often includes shares or bonds. They tend to track the performance of an index such as the FTSE UK Dividend+ Index and trade on stock exchanges, like shares. This means their price fluctuates throughout the day.

The iShares UK Dividend ETF offers a low-cost option for tracking the performance of the FTSE UK Dividend+ Index. This index is focused on dividend-paying companies – it’s designed to track the performance of the highest-yielding (income-paying) companies within the FTSE 350 Index.

An ETF is one of the simplest ways to invest and can be a low-cost starting point for an investment portfolio aiming to deliver a combination of income and long-term growth. ETFs that focus on UK income-paying companies could complement other income funds in a portfolio or could diversify a global portfolio focused on other regions such as the US or Asia.

Manager

Izabela Wigier is the Head of Factors & Thematics within BlackRock’s EMEA Index Equity International Portfolio Management team. She provides oversight for fund managers based in London who manage factor and thematic iShares equity ETFs, which includes dividend ETFs like this one.

While Wigier leads the team, each ETF at BlackRock has a primary and secondary manager, though in practice a broader team helps to manage each ETF. The wider team is well-resourced and experienced in index investing.

Process

This ETF aims to track the performance of the FTSE UK Dividend+ Index, which is made up of 50 UK companies with leading dividend yields (those that pay some of the highest levels of income). It does this by investing in every company in the index and in the same proportion. This is known as full replication and helps the ETF track the index closely.

The index selects the top 50 high-yielding companies from the FTSE 350 Index, which is the UK’s largest 350 companies. Investment trusts are removed from the index, as are companies that are not forecast to pay a dividend over the next 12 months. The remaining companies are ranked by annual historical dividend yield and annual forecasted dividend yield.

With a focus on high income-paying companies, the ETF has a bias towards the financials sector which made up 32.90% of the fund at the end of March 2025. This was followed by consumer staples and utilities at 14.23% and 10.30% respectively.

In any ETF, taxes, dealing commissions and the cost of running the ETF all drag on performance. BlackRock uses a system to help it determine the most efficient way to trade. It also cross trades internally across all its index funds and ETFs when there is an index rebalance. This helps to reduce costs.

The ETF can lend some of its investments to others in exchange for a fee in a process known as stock lending. This offsets some of the costs involved with running the ETF. Since BlackRock’s lending program started in 1981, only three borrowers with active loans have defaulted. In each case, BlackRock was able to repurchase every security out on loan with collateral on hand and without any losses to its clients. Even so, stock lending adds risk.

As this ETF is listed offshore investors are not usually entitled to compensation from the UK Financial Services Compensation Scheme.

Culture

BlackRock is currently the largest asset manager in the world, running around $11.6trn of assets globally as of March 2025. The company was founded by eight partners including current CEO Larry Fink and is known for both active and passive strategies. Employees at BlackRock are encouraged to hold shares in the company so that they are engaged with helping the company perform well and grow. The iShares brand represents BlackRock's family of index tracking and exchange-traded funds.

As the world's largest asset manager, and with lots of resource and knowledge under its belt, BlackRock benefits from unique access to the marketplace, which can help reduce trading costs. BlackRock is also a pioneer in the passive investment space and has a track record of innovation in this part of the investment market.

The team running this ETF also works closely with various equity and risk departments across the business. We believe this adds good support and challenge on how to run the ETF effectively.

ESG Integration

BlackRock was an early signatory to the Principles for Responsible Investment (PRI) and has offered Environmental, Social and Governance (ESG)-focused funds for several years, including through its iShares range of passive products. But it only made a company-wide commitment to ESG in January 2020. Following that announcement, the company promised to expand its range of ESG-focused ETFs, screen some thermal coal companies out from its actively managed funds and require all fund managers to consider ESG risks.

BlackRock’s Investment Stewardship Team aims to vote at 100% of meetings where it has the authority to do so. The Investment Stewardship team engages with companies, in conjunction with fund managers, and the results of proxy votes can be found on the BlackRock’s website’s ‘proxy voting search’ function.

BlackRock has courted controversy in recent years for failing to put its significant weight behind shareholder resolutions aimed at tackling climate change. It responded by committing to be more transparent on its voting activity and providing rationales for key votes.

BlackRock raised further concerns in 2022 when it indicated it might support fewer shareholder proposals based on environmental and social issues in the future. But its support for shareholder resolutions has fallen dramatically, from 40% in 2021 to just 4% in 2024. BlackRock argues that many of the resolutions were overreaching, lacked economic merit or didn’t promote long-term shareholder value, but this reasoning has been met with some scepticism.

In 2024, BlackRock announced that its US arm would step back from the Climate Action 100+ collective engagement initiative, citing legal considerations, although it suggested its international arm would remain a member.

The iShares UK Dividend ETF tracks an index that does not specifically integrate ESG considerations into its process. This ETF can therefore invest in shares issued by companies in any sector, in line with the index.

Cost

The ETF currently has an ongoing annual fund charge of 0.40%. The annual charge to hold ETFs in the HL ISA or SIPP is 0.45% (capped at £45 p.a. in the ISA and £200 in the SIPP). There are no charges from HL to hold ETFs within the HL Fund and Share Account or HL Junior ISA.

As ETFs trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

Over the last 10 years, this ETF has tracked the index well gaining 39.85%* compared to 49.10% for the index. As expected from an ETF, it’s fallen behind the benchmark over the long term because of the costs involved. However, the tools used by the managers have helped to keep performance close to the index.

During the last 12 months, the ETF rose 17.69% versus 18.66% for the FTSE UK Dividend+ Index. This was better than the performance of the broader UK stock market which returned 7.53% over this time. Remember, past performance isn’t a guide to future returns.

Telecommunications and financials were the best-performing sectors in the UK over the year and the ETF has more invested in these sectors compared to the broader UK market. Whereas basic materials and energy were the worst-performing UK sectors.

Higher interest rates have benefited banks as they increase the cost of borrowing, which boosts profits. Banks made the largest positive contribution to dividend growth in 2024 as all the major banks increased their dividends. On the other hand, most mining companies reduced their dividends in 2024 as volatile commodity prices and high costs have impacted profits.

The ETF’s yield was 5.36% as of the end of March 2025. In comparison, the yield for the FTSE All-Share Index, which represents 98% of the UK market, was 3.52%. Yields aren’t guaranteed and shouldn’t be considered a reliable indicator of future income.

Given BlackRock's size, experience and expertise running ETFs, we expect the ETF to continue to track the index closely in future, though there are no guarantees.